Our Vision

Our Vision is to “build a diversified tea

focused agribusiness that delivers value
sustainably and ethically.

Our Mission
Our Mission is building an uniquely Sri Lankan agribusiness with
emphasis on adding value to Ceylon Tea, Rubber, Spices, Specialty
fruits & herbs, in a symbiotic partnership with communities and nature.

Our Core Values

The philosophy of Chairman of the Company is that
‘Business as a Matter of Human Service’.
This philosophy, which is strengthened by the pillars of Quality,
Tradition, Our Customer, Ethics, Integrity and Sustainability,
form the core values of the Kahawatte Plantations.

Cover Page Story

“Kahawatte Plantations is committed to
producing the finest quality Tea,
Cinnamon and Rubber whilst driving
agricultural innovation to help
conserve the environment and empower
our communities.”
 Kahawatte Plantations PLC | Annual Report 2022 1

Financial Highlights
Year Ended 31st December 2022 2021 %
Rs.’000 Rs.’000 Increase/
(Decrease)
Revenue 6,261,316 4,267,216 47%
Profit from Operating Activities 958,234 89,340 973%
Net Profit/ (Loss) 312,038 (106,198) 394%
Total Comprehensive Income 392,805 11,348 3361%
Non-Current Assets 4,811,271 4,512,714 7%%
Shareholder’s Funds 1,538,914 1,146,109 34%
Stated Capital 1,698,952 1,698,952 0%
Earning / (Loss) per Share - (Rs.) 3.14 (1.07) 394%
Net Asset per Share - (Rs.) 15.48 11.53 34%

Contents
Estate Information 3
Chairman’s Review 4-6
Management Discussion 7-8
Corporate Governance 9 - 11
Board of Directors 12
Annual Report of the Board of Directors on the Affairs of the Company 13 - 14
Risk Management 15
Statement of Directors Responsibilities 16
Report of the Audit Committee 17
Report of the Remuneration Committee 17
Report of Related Party Transactions Review Committee 18
Independent Auditor’s Report 19 - 22
Statement of Profit or Loss & Other Comprehensive Income 23
Statement of Financial Position 24
Statement of Changes in Equity 25
Statement of Cash Flows 26
Notes to the Financial Statement 27 - 65
Information to Shareholders and Investors 66 - 67
Ten Year Summary 68
Corporate Information 69
Notice of Meeting 70
Form of Proxy 71
Instructions for Completion 72

Financial Calendar
1st Quarter interim Financial Report 13th May 2022
2nd Quarter interim Financial Report 15th August 2022
3rd Quarter interim Financial Report 15th November 2022
4th Quarter interim Financial Report 28th February 2023
Annual Report - 2022 31st May 2023
30th Annual General Meeting 22nd June 2023
2 Kahawatte Plantations PLC | Annual Report 2022
 Kahawatte Plantations PLC | Annual Report 2022 3

Estate Information

Kahawatte Region

Regional General Manager - Low Country - Mr. Tony Bertus

Estate Manager In Charge Crop Total Extent Postal Address No. of Buildings
(Ha)
Factory * Other
Buildings
Ekkerella Mr. Sampath Fernando Tea cum Rubber 751.03 Ekkerella Estate, Opanayake 1 276

Endane Mr. Sugath Galgamuwa Tea 650.56 Endane Estate, Kahawatte 2 944

Houpe Mr. Indika Prabath Tea cum Rubber 747.82 Houpe Estate, Kahawatte 1 889

Hunuwella Mr. Lakshman Tea cum Rubber 992.50 Hunuwella Estate, Opanayake 3 733
Premathilake
Opata Mr. Vajira Hewage Tea cum Rubber 829.00 Opata Estate, Kahawatte 2 944

Pelmadulla Mr. Nandana Tea cum Rubber 856.45 Pelmadulla Estate, Kahawatte 2 944
Samarasinghe
(w.e.f. 15.09.2022)

Poronuwa Mr. Suneth Hewagama Tea cum Rubber 813.03 Poronuwa Estate, Kahawatte 2 567

Rilhena Mr. Chanaka Gunathilake Tea cum Rubber 811.84 Rilhena Estate, Pelmadulla 1 737

Wellandura Mr. Kusal Siriwardhana Tea cum Rubber 751.86 Wellandura Estate, Kahawatte 2 589

Nawalapitiya Region

Director Plantations - Up Country Mr. Chaminda Gunarathna

Estate Manager In Charge Crop Total Extent Postal Address No. of Buildings
(Ha)
Factory * Other
Buildings
Barcaple Mr.M.S.L.Madhushanka Tea 624.00 Barcaple Estate, - 444
Kataboola
Craighead Mr. Abhisheka Samarakoon Tea 679.09 Craighead Estate, 1 888
Udahentenne
Galamuduna Mr. Muditha Rajasekara Tea 639.65 Galamuduna Estate, 1 516
Dolosbage
Imboolpittia Mr. Kasun Kariyawasam Tea 861.00 Imboolpittia Estate, 1 750
Nawalapitiya
Kataboola Mr. Shaminda De Silva Tea 988.12 Kataboola Estate, 1 1,309
Kataboola
Queensberry Mr. Prageeth Wanigasekara Tea 415.00 Queensberry Estate, 1 592
Kataboola
Westhall Mr. Akila Gunaratne. Tea 945.00 Westhall Estate, 1 504
Kataboola
22 11626

* Other buildings includes of offices, bungalows, workers quarters and child development centers
 4 Kahawatte Plantations PLC | Annual Report 2022
Chairman’s Review
I have the pleasure of presenting your company’s Audited Financial
Statements, Auditor’s Report and Director’s report for the financial
year ended 31st December 2022.
GLOBAL ECONOMY
After three years of the COVID19 induced crisis, output in many
countries rebounded in 2022 with International trade nearing
normalcy, and high commodity prices benefiting exports in many
developing countries.
Global inflation accelerated to 8.8% in 2022, reflecting the impact
of the lagged effects of easy monetary and fiscal support following
the COVID-19 pandemic, shortages of fuel and nonfuel commodities.
Unethical increase in sea freight rates added to the situation,
adding to import price inflation globally. The Russia-Ukraine War
also impacted key economies in Europe with connected capacity
constraints and supply chain issues having global repercussions.
Global tea production was 6.39 million metric tons in 2022 in
comparison to 6.47 million metric tons in 2021 and 6.01 million
metric tons in 2020.
The global natural rubber market demand reached a value of USD
30.61 billion in 2022 and expected to grow at a CAGR of 3.5% in the
forecast period of 2023-2028. Natural rubber production worldwide
in 2022 amounted to 14.3 million metric tons in comparison to 13.8
million metric tons in 2021 and 6.8 million metric tons in 2020.
SRI LANKA ECONOMY
The Sri Lankan economy faced the most difficult year in the post-
independence history of the nation. Year on year Inflation increased
to a peak of 70% in September 2022 which was the largest increase
in price levels in the country’s history since independence. Prices
escalated in food, energy and transport sectors and spilled over to all
sectors of the economy.
As a result of the severe balance of payments pressures and
dwindling gross official reserves, the rupee depreciated from Rs.
200.43 per USD in December 2021 to Rs. 363.11 per USD in December
2022. The shortage of foreign exchange liquidity in the domestic
market resulted in the severe restriction in essential imports such
as petroleum, cooking gas, medicines, fertilizer and many other
essential items.
In April 2022, Sri Lanka suspended payment on most foreign debt
resulting in the first sovereign default and ended the country’s
unblemished record of servicing external debt.
In 2022 the Sri Lanka economy contracted by 7.8% on a year on year
basis, recording the worst ever economic crisis the country has faced
since independence. Industries faced many supply side impediments,
such as a prolonged energy crisis, difficulties in importing key raw
materials and soaring global commodity prices.
Agricultural exports recorded an overall contraction of 5.9% in 2022
as a result of lower volumes mainly due to the lagged effect of the
severe shortage of chemical fertilizer and other agro chemicals, as
well as constrains on the essential supplies.
PLANTATION INDUSTRY
Tea
The tea industry was amongst Sri Lanka’s best performing sectors
2022 with a contribution of 10% of the country’s merchandise export
earnings. Despite a 13% decline in total export volumes, (250.19 Mn
Kgs in 2022 vis-à-vis 286.02 Mn Kgs in 2021), total export income for
the year dropped only by 5% in 2022 compared to 2021.
Tea exports generated USD 1.26 billion during the year 2022 in
comparison to USD 1.32 billion in the year 2021.
Overall production being low in the country resulted in Ceylon Origin
Teas witnessing a significant increase in prices in Rupee terms, whilst
also recording a steep increase in Dollar terms in comparison with
other major tea producing countries.
Total production as at end December 2022 totaled 251.50 Mn Kgs,
which is a drastic decline of 47.99 Mn /Kgs vis-à-vis 299.49 Mn Kgs
in 2021.
Rubber
Sri Lankan Rubber production in 2022 was 70.3 million tons
compared to 76.8 million tons in 2021. This performance was in the
backdrop of the outbreak of Pestalotiopsis leaf fall fungal disease
that had a continuous impact on most rubber planting districts. The
total damage is yet to be assessed by the authorities while most of
the RPCs made individual attempts to curtail the decease as there
was no national program deployed to eradicate the disease.
Rubber prices saw a 28 percent decline in 2022 and agricultural
rubber exports fell from USD 42.2 million in 2021 to USD 41.4 million
in 2022.
COMPANY PERFORMANCE
Tea
Your Company produced 4.39 million Kg of tea during the year under
review as against 5.57 million Kg in 2021. The low country segment
continues to rely heavily on bought leaf to utilize optimum factory
capacity and had to overcome significant challenges when operating
in an environment without a level playing field and competing for
the same limited supply of leaf. Due to the circumstances faced in
2022, the company produced 21.2% less than the volume in 2021.
Company owned factories that regulate themselves within strict
ethical and food safety protocols continue to be at a disadvantage
in comparison to those which operate with greater latitude where
procurement of bought leaf and good manufacturing practices
are concerned as the relevant authorities have failed to address
shortcomings arising from weakened oversight of tea factories
nationally.
The Company GSA for 2022 was Rs 1,229.26 per kg, as against
Rs.609.51 per kg in 2021, which is an Increase of 101.68% which
Is more than double the GSA in 2021. The low grown GSA of the
Company increased to Rs. 1,238.69 per kg in 2022 from Rs. 613.28 per
kg in 2021 whilst the mid grown GSA of the Company increased to
Rs. 1,216.22 from Rs. 604.45 per kg in 2021 mitigating the crop loss.

Chairman’s Review (Contd...)
Rubber
Natural rubber Prices improved during the year in spite of rising
crude oil prices and more wet weather experienced throughout the
period under review. National Average Latex Crepe 1X increased
from Rs. 635.16 per kg to Rs. 903.27 per kg from 2021 to 2022. Further,
National Average RSS1 prices increased by a range of Rs. 120/- to
140/- compared to the average RSS1 price of 2021.
In addition to this benefit, your Company was able to maintain the
rubber harvest at 0.87 Mn Kgs, 0.2 Mn Kgs marginally less than the
previous season inspite of unfavorable challenges.
Cinnamon
Prices of all grades of Cinnamon improved during the year. Better
demand from Latin American countries supported the market. C
grades trading at Rs. 3,000/- at the 1st quarter 2022 improved to Rs.
6,000/- . M Grades went up from Rs. 2,700/- to Rs. 3,500/- during the
year.
The Company’s Cinnamon production in 2022 was 63,165 Kgs,
which is a decrease of 20% over 2021. Prices of the top grades of
Cinnamon such as Alba, C4 and C5 improved by around 35% in 2022
in comparison to 2021.
Capital Development
It is pertinent to note that since 2012, your Company has spent over
Rs 2,149 Mn on replanting Tea (39%), Rubber (38%), Cinnamon (15%)
and other crops (8%). Expansion and further investment will continue
in the coming years
Awards and Achievements
Ten of the Company’s tea processing centers secured 339 top prices
during 2022 including 44 All-time record prices at the Colombo
auctions.
Four of the Company’s rubber processing centers secured 433 top
prices during 2022
Craighead Estate mark won the Grand Gold for OP-1 & Gold for PEK
and KINIHIRA CURL and an award of excellence for FBOP at the 2nd
World Black Tea Quality Evaluation Competition 2022 which was held
in China.
Houpe Estate mark won the Highly commended award for the Grade
FBOP at the UK Tea Academy Award 2022 which was held in 2022 in
UK.
Human Resource Development and Social Responsibility
While the pandemic caused unprecedented disruptions, it also
demonstrated the critical importance of a responsible business. The
social challenges that resulted from the pandemic and subsequent
economic crisis emphasized the importance of businesses protecting
those within their ecosystem – workers and their families, suppliers
and communities while doing the same for our natural environment.
Your Company was supported by the MJF Charitable Foundation
and Dilmah Conservation in its extensive outreach to support our
community through the challenges of COVID-19, extreme weather
and economic crisis. The circumstances have enabled us to rise above
and beyond our own limitations and to align our sustainability agenda
with our business and technological transitions and organizational
growth
Kahawatte Plantations PLC | Annual Report 2022 5
The MJF Charitable Foundation continues to provide support in
the area of community development which has been an integral
component of the overall strategy of your Company. Dilmah
Conservation collaborates with the Company in delivering
environmental education, trialing and promoting sustainable
agriculture amongst other interventions aimed at moving the
company towards a regenerative agricultural model.
Assistance has been provided by the MJF Charitable Foundation in
the following livelihood development initiatives for our plantation
community.
- The nutritional support programs covered all 61 Child
Development Centers in the Company and benefited 632
children under the age of five years with basic educational aid to
children at school entry level, Scholarship Programs providing
support to 6 students were carried out during the year under
review across all plantations of the Company.
- During the year the Foundation continued to provide ergonomic
plucking baskets to Pluckers, 16 no’s of field restrooms, 04 Nos
Factory Rest Rooms, 162 no’s of worker toilets, 4 no’s of up-
gradation to consumer outlets and 4 no’s of upgrading of child
development centers.
- 150 worker living houses were upgraded with the replacement
of roofing sheets.
- Special dry food pack support to 4400 plantation workers twice
during these challenging times
- Programs aimed at addressing issues such as prevention of
Dengue, awareness of both contagious and non-communicable
diseases, “Well Women Clinics” for female residents, Dental
Hygiene Clinics, Sight Evaluation Clinics and distribution of
spectacles, Alcoholism and substance abuse awareness &
prevention, Domestic Finance Management, Child Care and
Nutrition were continued during the year under review across
all plantations of the Company.
INDUSTRY OVERVIEW
Tea
Sri Lanka’s Tea Industry faces longer term challenges arising from
climate change, and increasing price competition in the global Tea
category with unforeseen situations impacting the tea market such
as challenges in logistics to Russia, the prevailing situation in Iran, the
Earthquakes in Syria & Turkey (where the latter has a vibrant domestic
market and the world’s highest average per-capita consumption) and
the appreciation of LKR.
Tea production in almost all producer countries showed negative
growth in 2022 in comparison to 2021. Historically, a low production
year is followed by an improvement in crop and therefore we expect
tea production to improve in 2023. In addition, the removal of the
ban on chemical fertilizer on tea plantations should contribute to
improved output. With supply expected to pick up, Tea prices are
expected to come down
Governments & the Industry in tea producer countries will no doubt
have to improve efficiency of production via digitization, deployment
of Artificial Intelligence, Machine Learning enabled tools to lower
production costs, tackle Labour shortages and to eradicate supply
chain inefficiencies. Such would reap dividends in production growth
in the medium to long term as the roll out would be gradual.
 6 Kahawatte Plantations PLC | Annual Report 2022
Chairman’s Review (Contd...)
Having confronted a crisis of global proportions, the combined
priorities of food security, better livelihoods for all and climate
action require that Sri Lankan producers and exporters focus on
more genuine value addition for tea, rubber and spices. This requires
more evolved national quality infrastructure, marketing aligned
with current consumer realities and a change in mindset. Sri Lanka
is yet to see adequate effort in this direction. The continuation of an
outdated business model creates vulnerabilities linked to servitude
to foreign, trading brands and internal competition which threaten
to push Sri Lankan producers into a spiral of declining prices which
would compromise social, environmental and commercial aspects of
the Ceylon Tea industry.
The opportunity for change has never been greater and we repeat
our call for more sophisticated marketing and management of Ceylon
Tea, aligning producers, brokers, exporters and marketing efforts
around the uniqueness of Ceylon Tea in its quality, sustainability and
heritage.
Rubber
In 2023, the outlook of global natural rubber (NR) market is anticipated
to reach 14.693 million tons of production while consumption is
projected at 14.738 million tons.
2023 is still a challenging year ahead with the uncertainties
surrounding the global economic recovery from the pandemic.
Though the World Bank and International Monetary Fund (IMF)
have both projected a slower growth for 2023 at 1.7% and 2.9%
respectively compared to last year, the recent reports released by
the Association of Natural Rubber Producing Countries (ANRPC)
anticipate a cautiously more optimistic economic recovery in 2023.
Solid growth in global oil demand is set to drive oil prices to above
$100 this year, and Brent Crude to trade at $105 per barrel by the
fourth quarter, according to Goldman Sachs. Further, Chinese
reopening could lift oil prices by $15 per barrel, as China’s demand
could increase by 1 million bpd on average between 2022 and 2023
which in turn will push up the synthetic(SR) rubber prices.
Rubber Production will be impacted by the spread of Pesta Leaf
Decease. Whilst remedial action has been taken by rubber growers, a
request has been made to the Rubber Research Institute (RRI) to take
leadership in finding a solution to overcome this problem.
FUTURE STRATEGIES AND CHALLENGES
Strategies
Based on an in-depth study and after careful consideration of a
medium to long term view, your Company has adopted strategies to
consolidate core crops and diversify to specific crops over the next
5 years. Your Company will also consider diversification initiatives to
overcome the issues faced by the current core crops.
Your company has embarked on a strategy to plant 185 HA of tea in
the two regions over the next 5 years choosing appropriate cultivars.
Preparatory work for planting 35 HA of tea has already commenced.
Replanting tea will continue and plans for replanting rubber will be
reviewed based on market developments. Cinnamon plantations will
be consolidated and value addition to Cinnamon will be pursued.
Your company will be preparing and pursuing a strategy for branded
specialty tea, using expertise of the Group and the company will
maintain optimum factory capacity utilization while implementing
new technological improvements and methods of working to
enhance productivity and reduce cost of production.
Your company has identified diversification to be a key element in
future growth and to reduce the current dependency on traditional
crops for financial stability. Despite continued uncertainty of state
policies & lack of inducement relating to ancillary crops, your
Company will continue to pursue opportunities for supplementing
core crops with other cultivations, in both regions and particularly
in the low-country segment without compromise of core revenue
crops.
Projects under consideration are;
- Consolidation of large scale plantation of timber reserves.
- Continue investment into coffee in the Nawalapitiya region
with the objective of having 42 HA of coffee by the year 2026
enabling the establishment of value addition to coffee.
- Diversification to horticulture crops & bamboo planting for
conservation areas.
- Consolidation on compost organic fertilizer using material
available on estates.
- Roof solar power projects similar to the project completed at
Houpe in 2023.
- Ground Solar project with the support of the MJF Group in
Imboolpitiya in 2023 for Power generation to commence by
2024.
- New Bio diversification projects with the support of Dilmah
Conservation such as the Endane Forest Corridor.
- Community based vegetable and agri food cultivations
Our business approach continues to have a holistic, sustainable
strategy aimed at providing long-term value for all our stakeholders.
Challenges
Tea prices which boomed in 2022 are likely to have a correction by
mid-2023. The continuing conflict in Russia-Ukraine and the situation
in Iran will also have an impact on prices. The appreciation of the LKR
may result in reduced auction prices in 2023.
Costs which have increased significantly in 2022 are not expected to
come down to pre-2022 levels and this would impact profitability.
Worker wages with no link to productivity, will inevitably have an
impact on bottom lines of Tea producing Companies.
Inability to overcome the Pesta Leaf Decease and the Global Rubber
market will challenge the profitability of rubber. Unless a productivity
based wage model is employed, Labour costs will not be sustainable.
The greater aspirations of workers are natural, and must be facilitated,
but this will impact the agricultural activities unless innovative
thinking is put into practice. Your company will take progressive
steps to meet the aspirations of our people.
The continuing cost of funds will pose a challenge to the ability of
your Company to embark on an aggressive planting and replanting
program.
APPRECIATION
I wish to place on record my appreciation to all stakeholders, especially
our Employees, Trade Unions, Buyers, Brokers, Suppliers and Banks,
for their cooperation and support during the period under review.
I also extend my sincere thanks to my colleagues on the Board
of Directors and the senior managers of the Company for their
contribution to the progress of the Company.
Merrill J. Fernando
Chairman
31st May 2023

Management Discussion
2022 signaled the first stage of the recovery of your Company, with a
return to profitability. The redefined strategies of the last few years
have started to deliver the expected positive results. The journey
was affected by the disruptions and wide-ranging implications of an
unprecedented economic and political crisis throughout 2022 where
Inflation soared to multi-decade highs, prompting rapid monetary
policy tightening and squeezing household budgets, just as COVID-
19-pandemic-related fiscal support was waning.
Overall revenue of the Company was Rs. 6.261 billion and 47% above
the revenue of 2021. The Gross profit of the Company increased by
Rs. 804 million in comparison to last year. The gross profit of the tea
segment increased by Rs. 886 million. The gross profit of the rubber
segment decreased by Rs. 45 million and that of other products by
Rs. 37 million.
Segmental Results
Tea – In spite of the prevailing agricultural challenges your Company
experienced only a decrease of 21.2% in manufactured tea output
against 2021.
The Company GSA for 2022 was Rs 1,229.26 per kg, Rs.4.98 per kg
below the National Auction Average, and Rs.619.75 per kg above GSA
of 2021. In 2022, the low grown segment of the Company averaged
Rs. 1,238.69 per kg, Rs. 143.27 per kg below the National low grown
elevation average, whilst the mid grown segment of the Company
averaged Rs 1,216.22 per kg in 2022, Rs. 238.87 per kg above the
National mid grown average.
Revenue from tea increased by 57% in 2022 when compared with
2021. However, the impact of the worker wage increases with no
link to productivity and increases in fertilizer and other input costs
affected the true potential of margins.
Rubber – The negative trend of natural rubber prices that turned
positive in 2021 continued in 2022, with the company securing a sold
NSA of Rs.738.71 per kg during the year, a 37% increase over 2021.
The reduction in supply was limited to 21% in 2022 against a 1.1Mn
Kgs produced in 2021, in spite of the unfavorable macroeconomic
conditions, leaf fungal disease & supply chain challenges.
Further, the increase in rubber prices resulted in rubber revenue
increasing by 9% in 2022 vis-à-vis 2021.
Diversified Crops - Your Company generated nearly 3% of its
revenue from other crops, mainly Cinnamon and Timber Tree Sales.
Cinnamon revenue decreased by 19% against 2021 as a result of crop
decline owing to unfavorable challenges.
Overall Company Performance
The Profit before tax for the year 2022 was Rs. 561 million and signals
the reversal of the trend of many years of losses.
Unprecedented inflation during 2022, increased the production costs
while the increase in interest rates affected finance costs. The effect
in change in tax rates increased the Deferred Tax charged to the Profit
and Loss Account by Rs 232 million. As a result, the Profit for the year
2022 has been contained at Rs. 312 million.
Kahawatte Plantations PLC | Annual Report 2022 7
Company Strategies
The management of the company strongly emphasizes and strictly
adherers to best practices in pursuit of the strategies, while greater
attention is given to continuous improvement of the business
process and productivity.
The Company’s core crops remain tea and rubber and received the
focused attention of the Management Team. The diversification
process for Cinnamon and other cash crops continue strictly adhering
to quality parameters amidst prevailing agricultural challenges.
The company is exploring new areas in specialty tea while
consolidating on manufacturing capacity & enhancement of quality
process improvement, agri product development & reforestation.
Though investment in CAPEX is a strain on the cashflow, the
management believes that doing so is essential for long term survival
and is dedicated to continuous investment in technology to sustain,
maximize process and production efficiencies by consolidation of
investments in dryers, new color sorters and reopened tea & rubber
factories as described in the Chairman’s review.
Sustainability
Your Company recognizes that the environmental sustainability of its
plantations depend on the health of the ecosystem at large.
- Your company has committed to Green Energy consolidation
via in-house and outsourced hydro power projects, expanding
roof solar as commissioned at Houpe estates to 3 more estates
& venturing into ground solar in Nawalapitiya in keeping with
environmental sustainability objectives.
- Dilmah Conservation has also engaged in the Agricultural
Innovation Nucleus initiatives with the company on a special
study of Cinnamon, potential crops planning such as - bamboo,
developing 40 varieties coffee and adding technical expertise to
the company on home gardening program
KWPL continued its association with Dilmah Conservation on below
initiatives along with oversight on various other sustainability and
conservation projects.
- One Earth Center for Climate Research & Adaptation - Sri Lanka’s
1st Climate Change Research Station located over 1500m above
sea level at Queensberry Estate, Nawalapitiya. The Company
supports the Dilmah Conservation’s efforts at the “One Earth
Centre” disseminating knowledge to multiple stakeholders,
most importantly to plantation workers and associated
communities.
- Climate-Smart Agricultural Projects – The objective of the
adaptive research program is to introduce a crop management
package to increase the resilience of tea crops to climate change
and research continue on seven estates managed by the
company in the Nawalapitiya region.
- Endana Nature Corridor Project – Continues to create an
ecological wealth through the Endana Nature Corridor & the
company is honored to move into the consolidation phase and
facilitate this flagship project to reconnect the isolated Walang
Kanda with Delwala Forest which is connected to the Sinharaja
Forest Reserve.
 8 Kahawatte Plantations PLC | Annual Report 2022

- Community Beekeeping in Endana “ Helping Bees be Buzzin”

not only helps conserve dwindling honeybee populations but
empowers economically disadvantaged communities.

Community Service and Employee Welfare

Recognizing prevailing unprecedented hardships faced by the
plantation communities, the Company in collaboration with the
MJF Charitable Foundation (MJFCF) continues to provide livelihood
development initiatives which are listed in the Chairman’s Review.
During the economic crisis faced by the community, Dry ration
packs was provided by the company to each worker family on two
occasions during the year with the assistance of MJFCF, valued at a
total of Rs 40 Mn.

Future outlook
As elaborated in the Chairman’s Review, 2023 is expected to be a very
challenging year.

On the positive side, the revocation of the ban imposed on the

importation and related easing off of supply chain constraints and
usage of chemical fertilizer on tea plantations will help restore
agricultural practices.

On the negative side, the expectation of higher crop and the LKR
reaching a certain degree of equilibrium may result in reduced tea
auction prices in 2023. Rubber prices so far in 2023 have averaged
less than 2022 and is unlikely to reach the 2022 levels. The continuing
impact of the “pesta” decease, spiraling costs and reduced prices will
put pressure on the profitability of rubber. Inclement weather could
have an impact on agri production.

While the disinflation process follows the unprecedented inflation

period of 2022, cost of production would remain spiked though
lower than 2022.

Overall, your company returned to profitability during the year

in review led by the recovery in its core sector – Tea, reversing the
negative trend that continued for years. With the uncertainties in
micro and macro-economic environment expected to get worse, the
company will have a challenging year ahead. The strategies and best
practices adopted by the company, keeping to the Environmental,
Social and Governance (ESG) framework, should help the company
navigate what is shaping up to be a challenging 2023.
 Kahawatte Plantations PLC | Annual Report 2022 9

Corporate Governance
The Company aspires to conform to best practices in Corporate budgets, approvals relating to key appointments, sanctioning major
Governance by ensuring greater transparency, business integrity, capital expenditure etc.
professionalism and ethical values in the best interests of all
stakeholders. Attendance at Meetings
Building on regulatory requirements, this statement describes the
application of the good governance principles and practices within Director Status Board RPT RC AC
the Company. Merrill J. Fernando NED 01 - - -

Board of Directors Himendra S. Ranaweera NED 03 - 01 -

Dilhan C .Fernando NED 04 - - -
The Company’s business and operations are managed under the
supervision of the Board which consists of members with experience Malik J. Fernando NED 03 - - -
and knowledge in the area of business in which the Company is Minette D.A. Perera NEID 04 04 01 05
engaged, with specific acumen in terms of commercial, financial and
industrial expertise. Daya P. Wickramatunga NEID 03 04 01 05
Nimal M. Amerasekera NEID 03 - - -
The Board is responsible for formulation of overall business policy and
strategy and for monitoring the effective implementation thereof. Total number of meetings 04 04 01 05

Composition of the Board NED : Non-Executive Director/NEID: Non-Executive Independent Director

The Board consisted of seven (7) Directors. Based on the declarations
submitted by them the Board has determined that three of such Non
Executive Directors namely, Messrs. Daya Pabath Wickramatunga,
Nimal Maxwell Amerasekera and Ms. Minette D. A. Perera were
‘independent’ as per the Listing Rules of the Colombo Stock Exchange.
Directors exercise their independent judgement, promoting
constructive board deliberations and objective evaluation of
the performance of the Company. Independence of Directors is
determined by the Board, based on annual declarations submitted
by Directors and having considered the possibility of any impairment
in independence due to extended board tenures, where applicable.
Considering that Ms. Minette D. A. Perera expresses uncompromised
independent judgement and impartiality in discharging her functions
as a Director, and Mr. Wickramatunge freely shares his expertise
in agricultural best practices and maintains his independence by
voicing his unbiased opinions and advice to the Board, the Board
has determined that both Ms. Minette D. A. Perera and Mr. Daya
Wickramatunga as “independent” irrespective of their long tenure of
service on the Board.
Chairman and Chief Executive Officer
The roles of the Chairman and Chief Executive Officer are separate
with a clear distinction of responsibilities, which ensures balance of
power and authority.
Mr. Merrill J. Fernando is the non-executive Chairman of the Board
of Directors. In the absence of a Chief Executive Officer the affairs of
the Company are overseen by the Board appointed Sub Committee
consisting of Mr. Dilhan C. Fernando and Mr. Himendra Ranaweera.
They have been able to successfully share their experiences in tea
and operational activities to help navigate the Company during the
year under review. The Board appointed Doctor Dan Seevarathnam,
a veteran in the industry as a consultant, he is designated as the Chief
Operational Officer to advise the Board on day to day operational
related matters. Dr. Seevarathnam chair meetings of the Management
Committee that periodically report to the Board Sub Committee.
Appointment of Directors
The Board collectively decides on the appointment of Directors. The
Company’s Articles of Association requires any Director appointed
during the year to hold office until the next Annual General Meeting,
at which he retires and seeks re-election by the shareholders. One
third of Directors retire by rotation and if eligible seek re-election by
the shareholders.
Board Sub Committees
In addition to the Board Sub Committee appointed to oversee
operational matters, to facilitate focused attention on specific areas
of review and in pursuance of the Listing Rules of the Colombo
Stock Exchange on Corporate Governance, the Board of Kahawatte
Plantations PLC has appointed Three Sub Committees, the Audit
Committee, Remuneration Committee and the Related Party
Transactions Review Committee.
Audit Committee
The Audit Committee consists of three (3) Independent Non Executive
Directors.
Ms. Minette D. A. Perera, who is a member of three recognized
professional accounting bodies, is the Chairperson of the Committee.
Mr. Daya P. Wickramatunga is a member of the Committee. Mr. Nimal
M Amerasekera was appointed as a member w.e.f 10.04.2023.
The Report of the Audit Committee appears on page 17.
Remuneration Committee
The Remuneration Committee consists of three (3) Non- Executive
Directors two (2) of whom are Independent Non- Executive Directors.
Mr. Himendra S. Ranaweera is the Chairman of the Committee and
Ms. Minette D. A. Perera and Mr. Daya P. Wickramatunga are the
remaining members.

Board Meetings and Attendance
Board meetings are held on quarterly basis with the flexibility to
arrange additional meetings when required. The Board met four
times during the year. The Board’s functions include the assessment
of the adequacy and effectiveness of internal controls, compliance
with applicable laws and regulations review of management and
operational information, adoption of annual and interim accounts
before they are published, review of exposure to key business risks,
strategic direction of operational and management units, approval
of annual budgets, monitoring progress towards achieving the
The Report of the Remuneration Committee is given on page 17 of
this Annual Report.
Related Party Transactions Review Committee
The Related Party Transactions Review Committee consists of Ms.
Minette D. A. Perera and Mr. Daya P. Wickramatunga.
The Report of the Related Party Transactions Review Committee is
given on page 18 of this Annual Report.
 10 Kahawatte Plantations PLC | Annual Report 2022

Corporate Governance (Contd...)

Financial Reporting
The Board aims to provide and present a balanced assessment of
the Company’s position and prospects in compliance with the Sri
Lanka Accounting Standards (LKAS / SLFRS) and the relevant Statutes
and has established formal and transparent processes for financial
reporting and internal controls.
The Statement of Directors’ Responsibilities for Financial Reporting is
given on page 16 of this Report.
significant developments to all shareholders, the Colombo Stock
Exchange and where necessary, to the general public.
Shareholders are provided with Annual Report and, the Company
disseminates to the market, Interim Financial Statements in
accordance with the Listing Rules of the Colombo Stock Exchange.
The Annual General Meeting provides a platform for shareholders to
discuss and seek clarifications on the activities of the Company.

Internal Controls By Order of the Board

Kahawatte Plantations PLC
The Board is responsible for the Company’s internal controls. In this
respect controls are established for safeguarding the Company’s
assets, making available accurate and timely information and
imposing greater discipline on decision making. The process is
strengthened by regular internal audits. The internal audit specifically
focuses on internal controls and procedures in the areas of finance, Dilhan C Fernando
operations, human resources, payroll management and relevant Director
legal and regulatory compliance.
31st May 2023
Corporate Disclosure and Shareholder Relationship Colombo

The Company is committed to providing timely and accurate

disclosure of all price sensitive information, financial results and

Rule No. Requirement Disclosure Compliant

7.10 (a) Statement confirming compliance with the Corporate Governance Rules Annual Report of the Board of Directors Yes
7.10.1(a) Non-Executive Directors (NED) composition Composition of the Board Yes
At least two or one third of total Directors, whichever is higher,
7.10.2(a) Independent Directors composition Composition of the Board Yes
Two or one-third of Non-Executive Directors, whichever is higher,
7.10.2(b) Independence of Directors Composition of the Board Yes
Each Non-Executive Director should submit a declaration of
Independence/ Non-Independence
7.10.3(a) Disclosure relating to Directors Members of the Board Yes
The names of Independent Directors should be disclosed in the
Annual Report
7.10.3 (a)/(b) Independence of Directors Composition of the Board Yes
The Board shall make a determination annually as to the
Independence or Non-Independence of each Non-Executive Director
7.10.3(c) Disclosure relating to Directors Board profiles Yes
A brief resume of each Director including the Director’s areas of expertise.
7.10.3(d) Appointment of new Directors Appointment of Directors Yes
Provide a brief resume of any new Director appointed to the Board
7.10.5 Remuneration Committee Remuneration Committee Report Yes
A listed company shall have a Remuneration Committee
7.10.5(a) Composition of Remuneration Committee Remuneration Committee Report Yes
Shall comprise of Non-Executive Directors, a majority of whom shall be
Independent
7.10.5(b) Functions of Remuneration Committee Remuneration Committee Report Yes
The Remuneration Committee shall recommend the remuneration of
the Chief Executive Officer and the Executive Directors to the Board, for
approval
7.10.5(c) Disclosure in the Annual Report relating to Remuneration Committee The Remuneration Committee Report Yes
Annual Report should set out;
- Names of the Directors comprising the Remuneration Committee
- Statement of Remuneration policy
- Aggregate remuneration paid to Executive and Non-Executive Directors
7.10.6 Audit Committee Audit Committee Report Yes
A listed company shall have an Audit Committee
7.10.6(a) Composition of Audit Committee Audit Committee Report Yes
Shall comprise of Non-Executive Directors, a majority of whom are
Independent Chief Executive Officer and the Chief Financial Officer
should attend Audit Committee Meetings
The Chairman of the Audit Committee or one member should be a
member of a professional accounting body
 Kahawatte Plantations PLC | Annual Report 2022 11

Corporate Governance (Contd...)

Rule No. Requirement Disclosure Compliant
7.10.6(b) Audit Committee Functions Audit Committee Report Yes
Should be as outlined in the Section 7.10 6 (b)

7.10.6(c) Disclosure in the Annual Report relating to Audit Committee Audit Committee Report Yes
• Names of the Directors comprising the Audit Committee
• Basis for determining the independence of the Auditors
• Report of the Audit Committee in the prescribed manner
9.3.2 Related Party Transactions Review Committee Related Party Transactions Yes
a) Details pertaining to Non-Recurrent Related Party Transactions Review Committee Report
b) Details pertaining to Recurrent Related Party Transactions
c) Report of the Related Party Transactions Review Committee
d) Declaration by the Board of Directors as an affirmative statement of
compliance with the rules pertaining to Related Party Transactions, or
a negative statement otherwise
7.6 Contents of the Annual Report Yes

i) Names of directors of the entity Members of the Board Yes

ii) Principal activities of the entity during the year under review Principal activities of the Yes
Company and review of
performance during the
year
iii) 20 largest holders of voting and non-voting shares and the percentage of shares Information to Yes
shareholders and investors

iv) The Public Holding percentage etc Information to Yes

shareholders and investors

v) Directors and CEO’s holding in shares of the entity at the beginning and end of each year Directors Shareholding Yes

vi) Information pertaining to material foreseeable risk factors Risk Management Yes

vii) Details of material issues pertaining to employees and industrial relations Number of Employees Yes

viii) Extents, locations, valuations and the number of buildings of the entity’s land holdings Page 03 & Note 14 to the Yes
Financial Statements

ix) Number of shares representing the stated capital Information to Yes

shareholders and investors

x) Distribution schedule of the number of shareholders and the percentage of their total Information to Yes
holdin shareholders and investors

xi) Ratios and market price information Information to Yes

shareholders and investors

xii) Significant changes in the entity’s fixed assets Note 14 to the Financial Yes
Statements - Property,
plant and Equipment
xiii) If during the year the entity has raised funds either through a public issue, rights issue and N/A N/A
private placement

xiv) Employee share option/purchase schemes N/A N/A

xv) Corporate Governance Disclosure Corporate Governance Yes

Practices in terms of Rules
7.10.3, 7.10.5c and 7.10.6c
of the Listing Rules
xvi) Related Party Transactions Note 29 to the Financial Yes
Statements
- Related Party Transactions
 12 Kahawatte Plantations PLC | Annual Report 2022
Board of Directors
Mr. Merrill J. Fernando
Chairman
Appointed to the Board in 2015 as a Non Executive Director. Merrill
J. Fernando is the Chairman of MJF Holdings Limited and one of Sri
Lanka’s first tea tasters in the then British-dominated trade. He is the
founder of “DILMAH TEA” brand name which re- launched, redefined
and re-established the quality of Ceylon tea. DILMAH is now, a much
respected global name, renowned for its quality and the philosophy
of caring and sharing behind the brand. Having established the
brand on the unique philosophy of making business a matter of
human service, Mr. Merrill J Fernando’s MJF Charitable Foundation’
and Dilmah Conservation fulfil this pledge by diverting a minimum
of 15% of pre-tax profits from the sale of Dilmah Tea towards direct
humanitarian and environmental interventions.
He was honored for his service towards humanity with the Oslo
Business for Peace Award in 2015 by a committee of Nobel Peace
laureates. He received the First Award for Responsible Capitalism
in 2016 and an Honorary Doctorate from New Zealand’s Massey
University in 2019. He also holds the title of Deshamanya awarded to
him at the 2019 Sri Lanka National Honours ceremony.
Mr. Malik J. Fernando
Director
Mr. Malik J. Fernando was appointed to the Board of Kahawatte
Plantations PLC in January 2001 as a Non-Executive Director.
Mr. Malik J. Fernando is a Director of Dilmah Ceylon Tea Company
PLC and MJF Holdings Limited, which owns several tea growing
and tea packing/exporting companies, supplying the “Dilmah Tea”
brand around the world. He is also the CEO of MJF Leisure (Private)
Limited, the tourism arm of MJF Group and the Managing Director
of Resplendent Ceylon (Private) Limited, the Hotel Management
Company of MJF Group. Mr. Malik J Fernando is also a Trustee Board
Member of MJF Charitable Foundation and is committed to the
exemplary philosophy of making Business a matter of Human Service.
Mr. Fernando also holds several other directorships in Public Listed
and Private Companies.
Mr. Fernando holds a Bachelor of Science Degree in Management
from Babson College, USA.
Ms. Minette D. A. Perera
Director
Ms. Minette D. A. Perera was the former Group Finance Director of the
MJF Group and was appointed to the Board of Kahawatte Plantations
PLC in January 2001.
Ms. Perera is a Fellow Member of the Institute of Chartered Accountants
of Sri Lanka, the Chartered Institute of Management Accountants of
UK and the Association of Chartered Certified Accountants of UK.
She has over 40 years working experience as a Finance Professional
having worked in leading local and international companies as an
Executive Director.
Ms. Perera currently serves on the Board of a number of Public Quoted
Companies including First Capital Holdings Plc. Orient Finance Plc
and Dilmah Ceylon Tea Company Plc.
Mr. Dilhan C. Fernando
Director
Mr. Dilhan C Fernando was appointed, to the Board of Kahawatte
Plantations PLC in September 2008 as a Non- Executive Director.
Dilhan C. Fernando is the CEO of Dilmah Tea. His efforts have focused
on bringing tea to a new generation with innovations like tea
gastronomy, t- Lounges and by enhancing knowledge in tea through
the Dilmah School of Tea. Dilhan also nurtures his father’s pledge to
make business a matter of human service through the work of the MJF
Charitable Foundation and Dilmah Conservation. Dilhan currently
chairs the Biodiversity Sri Lanka Platform which was pioneered by
Dilmah Conservation together with the Ceylon Chamber of Commerce
and IUCN (International Union for Conservation of Nature). Dilhan is
the Chairman of the United Nations Global Compact in Sri Lanka, a
corporate sustainability initiative by the UN.
Mr. Himendra S. Ranaweera
Director
Mr. Himendra S. Ranaweera was appointed to the Board of
Kahawatte Plantations PLC in September 2008 as a Non- Executive
Director.
Mr. Ranaweera is the Deputy Chairman of Dilmah Ceylon Tea
Company PLC and has been with the group for over 30 years. He also
serves as a Director in a number of Companies of the MJF Group.
He counts over 50 years of experience and expertise in Operations
Management both in Sri Lanka and overseas.
Mr. Daya P. Wickramatunga
Director
Mr. Daya P Wickramatunga was appointed to the Board of
Kahawatte Plantations PLC in September 2008 as an Independent
Non -Executive Director.
He is a graduate of the University of Ceylon, Science Faculty. He
won an FAO scholarship awarded to Science Graduates in the Food
Industry, and successfully completed his postgraduate degree from
the FAO run ‘Central Technological Research Institute, Mysore, India’.
He counts over 50 years working experience both in Sri Lanka and
overseas with wide exposure to Research and Development in the
Food Industry.
Mr. Nimal Maxwell Amerasekera
Director
Mr. Nimal M. Amerasekera is a Fellow of the Institute of Plantation
Management and counts over 55 years of experience in both the
private and public sectors in the plantation industry.
Mr. Amerasekera commenced his career as a trainee Plantation
Executive at James Finlay & Co Ltd in 1963.
He served as a Director of the Janatha Estates Development Board
from 1985 to 1990 and held the position of Director/ General Manager
of DPL Plantations Ltd under the Hayleys Group of Companies from
1992 to 2004.
 Kahawatte Plantations PLC | Annual Report 2022 13

Annual Report of the Board of Directors on the Affairs

of the Company
The Directors of Kahawatte Plantations PLC have pleasure in The Board appointed a Board Sub Committee comprising of Mr.
presenting their Annual Report together with the Audited Financial Dilhan C. Fernando and Mr. Himendra Ranaweera oversee the
Statements of the Company for the year ended 31st December 2022. operational matters of the Company. The Management Committee
This Annual Report of the Board on the affairs of the Company is entrusted with the day to day running of the Company and reports
contains the information required in terms of the Companies Act, No. to the Board Sub Committee.
07 of 2007, the Listing Rules of the Colombo Stock Exchange and is
guided by recommended best practices. The Board recommends that Messrs. Merrill J Fernando, Mr. Himendra
S. Ranaweera, Mr. Daya P Wickramatunga, Mr. Nimal Maxwell
General Amerasekera who are over 70 years of age be re-appointed Directors
Kahawatte Plantations PLC is a Public Limited Liability Company at the forthcoming Annual General Meeting, in terms of section 211
which was incorporated under the Companies Act No.17 of 1982 on of the Companies Act.
15 June 1992, listed on the Colombo Stock Exchange in the year 1998
and re-registered as per the Companies Act, No. 07 of 2007 on 26th Ms. Minette D.A. Perera retires by rotation at the Annual General
December 2007 under Company Registration No PQ 109. Meeting in terms of Article 25(1) of the Articles of Association and
being eligible, offers himself for re-election.
Principal activities of the Company and review of
performance during the year Interests Register
The Company’s principal activities, which remained unchanged The Company maintains an Interests Register in terms of the
during the year were: cultivation, manufacture and marketing of tea, Companies Act, No. 7 of 2007. The names of Directors who were
rubber, cinnamon, forestry products and other crops. directly or indirectly interested in a contract or a related party
transaction with the Company during the accounting period under
A review of the affairs of the Company and its performance during review are given in Note 29 to the Financial Statements on pages 58
the year with comments on financial results, future strategies and to 59.
prospects are contained in the Chairman’s review (pages 4 to 6) and
the Management Discussion (pages 7 to 8).
This Report together with the Financial Statements, reflect the state
Directors’ Remuneration
The aggregate remuneration paid to the Directors all Non- Executive
of affairs of the Company.
during the year was Rs.1,260,000/- paid as short-term employee
Financial Statements benefits.
The Financial Statements of the Company are given on pages 23 to
65. Board Sub-Committees
The Board delegates functions warranting greater attention to a
Summarized Financial Results Board Sub Committee comprising of Mr. Dilhan C. Fernando and Mr.
Himendra Ranaweera to oversee the functions of the Management
31st Dec. 2022 31st Dec. 2021 Committee.
Rs.000 Rs.000
The Audit Committee, Remuneration Committee and the Related
Revenue 6,261,316 4,267,216 Party Transactions Review Committee are the mandatory Sub-
Net Proft/(Loss) Year 312,038 (106,198) Committees constituted by the Board in compliance with the Listing
Rules of the CSE.
Total 392,805 11,348
Comprehensive Related Party Transactions
Income Relevant disclosures made by the Directors on contracts and proposed
contracts with the Company or any of the subsidiaries within the
Carried forward Loss (500,634) (832,120) Group appear under note No. 29 in Related Party Disclosure to the
Financial Statements on pages 58 to 59 of the Report. These interests
Auditors Report have been declared at Directors’ meetings in compliance with the
The Report of the Auditors on the Financial Statements of the requirements on Related Party Transactions of the Listing Rules of the
Company is given on pages 19 to 22. CSE and Section 192(1) of the Companies Act No 7 of 2007.

Accounting Policies The Related Party Transaction Review Committee is responsible for
The accounting policies adopted by the Company in the preparation reviewing the Related Party Transactions of the Company. Committee
of Financial Statements are given on pages 27 to 37 are consistent Report is given on page 18.
with those of the previous period.
Auditors
Directors Messrs. KPMG, Chartered Accountants served as the Auditors during
The names of the Directors who held office as at the end of the the year under review. The Auditors do not have any interest in the
accounting period are given herewith and their brief profiles appear Company other than as Auditors and consultants on tax compliance
on pages 12. and other non-audit services.
Members of the Board The audit fee payable to the Auditors for the year under review is Rs.
Directors 3,585,000 /- (2021- Rs. 3,050,000/-)
Mr. Merrill J. Fernando - Chairman
Mr. Dilhan C. Fernando - Director The fee payable to the Auditors for non-audit services provided
Mr. Malik J. Fernando - Director during the year under review is Rs.361,764/- (2021 - Rs. 228,000/-)
Mr. Himendra S. Ranaweera - Director
Ms. Minette D.A. Perera - Director * The Auditors have expressed their willingness to continue in office. A
Mr. Daya P. Wickramatunga - Director * resolution to re-appoint the Auditors and to authorize the Directors
Mr. Nimal Maxwell Amerasekera - Director * to determine their remuneration will be proposed at the Annual
* Independent Non Executive Directors General Meeting.
 14 Kahawatte Plantations PLC | Annual Report 2022

Annual Report of the Board of Directors on the Affairs of the Company (Contd...)
Donations Reserves
The Company did not make any donations during the year under The movements of reserves during the year are given under the
review. (2021 -Nil) Statement of Changes in Equity on page 25.

Stated Capital Property, Plant and Equipment

The Stated Capital of the Company is Rs. 1,698,952,641/- represented The Details of property plant and equipment and changes during the
by 99,406,691 Ordinary Shares and One (01) Golden Share. year are given in Note 14 to the Financial Statements.

Golden Share Land Holdings

The Secretary to the Treasury has been issued with one Golden Share
on behalf of the Government of Sri Lanka, carrying special rights as
per the Articles of Association of the Company.
Directors’ Shareholding
The shareholdings of the Directors of the Company are as follows.
The Company does not own any freehold land.
Events occurring after the Reporting date
No material circumstances have arisen since the reporting date,
which would require adjustment to, or disclosure in the Financial
Statements.

Statutory Payments
As at As at The Directors confirm that, to the best of their knowledge all statutory
31/12/2022 31/12/2021 payments in relation to taxes and duties and in relation to employees
have been made promptly on the due dates.
Mr. Merrill J Fernando - -
Mr. Malik J Fernando - - Compliance with Laws & Regulations
To the best of the knowledge and belief of the Directors, the Company
Ms. M D A Perera 4,000 4,000
has not engaged in any activities contravening the laws & regulations
Mr. Daya P Wickramatunga - - of the country.
Mr. Dilhan C Fernando - -
Going Concern
Mr. Himendra S Ranaweera - - On the basis of current financial projections and facilities available,
Mr. Nimal M Amerasekera - - the Directors are confident that the Company has adequate resources
to continue business operations. Accordingly, the Directors consider
that it is appropriate to adopt the going concern basis in preparing
the financial statements.
Mr. Merrill J Fernando, Mr. Malik J Fernando, Mr. Dilhan C Fernando
and Mr. Himendra S Ranaweera are Directors of Forbes Plantations
(Pvt) Ltd, which held 50,955,581 shares equivalent to 51.260% of the Annual General Meeting
shares constituting the Stated Capital of the Company. The Annual General Meeting will be held at 03.00 p.m. on 22nd day
of June 2023 at the Board Room of MJF Group, No. 111, Negombo Rd,
Mr. Merrill J Fernando, Mr. Malik J Fernando, Mr. Dilhan C Fernando Peliyagoda via Microsoft Virtual Platform. The Notice of the Annual
and Mr. Himendra S Ranaweera are Directors of MJF Teas (Pvt) Ltd, General Meeting appears on page 70.
which held 19,516,886 shares equivalent to 19.63% of the shares
constituting the Stated Capital of the Company. By Order of the Board
Kahawatte Plantations PLC
Mr. Merrill J Fernando, Mr. Malik J Fernando, Ms. Minette D A Perera,
Mr. Dilhan C Fernando and Mr. Himendra S Ranaweera are Directors
of Dilmah Ceylon Tea Company PLC, which held 12,571,800 shares
equivalent to 12.65% of the shares constituting the Stated Capital of
the Company.
Ms. Minette D A Perera Mr. Dilhan C Fernando
Major Shareholders, Distribution Schedule and other Director Director
information
Information on the twenty largest shareholders of the Company, the
distribution schedule of the number of shareholders and percentage
of their total holdings, percentage of shares held by the public, the
number of shareholders who held the Public holding and market
values per share as per the Listing Rules of the Colombo Stock Ms. Jayanga Wegodapola
Exchange are given on pages 66 to 67 under Investor Information. Secretary

Corporate Governance Practices in terms of Rules 7.10.3, 31st May 2023

7.10.5c and 7.10.6c of the Listing Rules Colombo
The Board confirms that the Company is in compliance with
Corporate Governance Practices as per the Listing Rules, which are
set out in this Report of the Directors on Pages 13 - 14, the Report on
Corporate Governance on page 09 - 11 and the Report of the Audit
Committee on page 17.

Declaration in terms of Rule 9.3.2(d) of the Listing Rules the Board

confirms that the Company is in compliance with Rule 9 of the Listing
Rules of the Colombo Stock Exchange pertaining to Related Party
Transactions, during the financial year.
 Kahawatte Plantations PLC | Annual Report 2022 15

Risk Management
By the nature of its business, the plantation sector is exposed to
varying degrees of risks associated with the cultivation and processing
of tea , rubber and cinnamon and the economic environment has so
far been challenging in the year under review with the impact of
rapid changes in macroeconomic factors as outlined under note 35
of the financial statements (page 65)
Legal Risk
Being a listed Company, a taxpayer and an employer who has to fulfil
various legal as well as statutory requirements, the Board of Directors
of the Company has set in place an effective compliance system so
that no legal, banking, company, stock market and other regulations
are violated.

Creating an awareness of risks associated with the tea & rubber
industry, a uniform interpretation of risks and identifying the
types of risks are imperative to success of an overall risk management
system.
The Board of Directors places special emphasis on the management
of business risks and together with the Management Committee,
ensures that a sound system of controls including financial,
operational and compliances are in place, to safeguard the
shareholders investment and the assets and reviews regularly the
effectiveness of such controls.
Trade Union
The Company manages a highly unionised work force within
the Company. In order to mitigate industrial disputes and work
stoppages, a collective agreement is signed between the Union and
the Employer’s Federation of which your Company is a member.
Climatic Changes
The Company adopts best agricultural practices in order to mitigate
loss of crop due to unfavorable climatic changes. The management
is also very selective on planting improved clones of tea, rubber and
other crops, which withstands adverse climatic conditions.

Operational Risk
The Company practices adequate internal control systems to
mitigate operational risk. Periodic reviews are carried out at Estates
level to ensure the quality and cost effectiveness of the system of
internal controls in place. Adequate insurance covers are in place to
safeguard the Company’s assets and minimise any financial losses.

Interest Rate Risk

The Company has taken advantage of relative low interest rates
that prevailed first half during 2022 compared to previous years. The
Company regularly monitoring all receivables, checking invoices &
adopting a periodic follow up through our ERP system.
 16 Kahawatte Plantations PLC | Annual Report 2022

Statement of Directors’ Responsibilities

The following statement sets out responsibilities of the Directors
in relation to the financial statements of the Company prepared in
accordance with the provisions of the Companies Act No. 7 of 2007.
The responsibility of the Independent Auditor in relation to the
financial statements is set out in the Report of the Auditors given on
page 21 of the Annual Report.
As per the provisions of sections 150 (1) and 151 of the Companies
Act No. 7 of 2007, the Directors are required to prepare financial
statements for each financial year, which should give a true and fair
view of the state of affairs of the Company as at the reporting date and
its profit or loss for the financial year then ended, and such financial
statements of the Company shall comply with any regulations made
under the Companies Act, which specifies the form and content
of financial statements and any requirements which apply to the
Company’s financial statements under any other written law.
The financial statements of the Company have been certified by the
Chief Financial Officer of the Company, the officer responsible for
their preparation as required by the Section 150 (1) (b) and they have
also been signed by two Directors of the Company as required by
Section 150(1)(c) of the Companies Act.
The Directors, to the best of their knowledge and belief, are satisfied
that all statutory payments in relation to all relevant regulatory and
statutory authorities which were due and payable by the Company as
at the reporting date have been paid or where relevant, provided for.
The Directors are of the view that they have discharged their
responsibilities as set out in this Statement.
By Order of the Board
Kahawatte Plantations PLC

In preparing the financial statements, the Directors are responsible

to ensure that appropriate accounting policies have been selected
and applied consistently, reasonable and prudent judgments and
estimates have been made and all applicable accounting standards
have been complied with.
Mr. Dilhan C Fernando
The Directors are also required to ensure that the Company has
adequate resources to continue in operation to justify applying the Director
going concern basis in preparing these financial statements. Further,
the Directors have a responsibility to ensure that the Company 31st May 2023
maintains sufficient accounting records to disclose with accuracy, the Colombo
financial position of the Company.

Financial Statements prepared and presented in this Report have been

prepared based on Sri Lanka Accounting Standards (SLFRS/LKAS)
and are consistent with the underlying books of account and are in
conformity with the requirements of Sri Lanka Accounting Standards,
Companies Act No. 7 of 2007, Sri Lanka Accounting and Auditing
Standards Act No. 15 of 1995 and the Listing Rules of the Colombo
Stock Exchange. The Directors have also implemented effective and
comprehensive systems of internal control for identifying, recording,
evaluating and managing the significant risks faced by the Company
throughout the year.

Report of the Audit Committee
The Audit Committee appointed by the Board of Directors of
Kahawatte Plantations PLC comprises of three (3) Non- Executive
Directors both of whom are deemed ‘Independent’ as per the listing
rules of the Colombo Stock Exchange. The members of the Audit
Committee are Ms. Minette D A Perera (Chairperson), Mr. Daya P
Wickramatunga and Mr. Nimal M Amerasekera (w.e.f.10.04.2023).
The Chief Financial Officer and other Senior Managers, including
the Internal Audit Executives attend the meetings of the Audit
Committee by invitation.
The primary function of the Committee is to assist the Board in
fulfilling its oversight responsibilities, primarily through overseeing
the Company’s financial reporting process and systems of internal
accounting and financial controls, monitoring the independence
and performance of the Company’s External Auditors and providing
an avenue of communication among the External Auditors,
Management and the Board.
The Audit Committee is empowered, amongst other functions, to
examine any matters relating to the financial affairs of the Company
and to review the adequacy of the internal control procedures, audit
programmes, disclosure of accounting policies, compliance with
statutory and Corporate Governance requirements, etc. The Audit
Committee is also empowered to review and monitor the financial
reporting process of the Company, so as to provide an additional
assurance on the reliability of the financial statements through a
process of independent and objective reviews. As such, the Audit
Committee acts as an effective forum in assisting the Board of
Directors in discharging its responsibilities of ensuring the quality of
financial reporting and related communications to the shareholders
and the public.
Report of the Remuneration Committee
The Committee is responsible for setting the Company’s policy on
compensation and benefits, overseeing its implementation. It is
also mandated to review significant Human Resource policies that
influence the Company’s performance. The Committee specifically
reviews remuneration of the Chief Executive Officer, Executive
Directors and Senior Members of the management as it is designated
to consider.
Committee Composition
The Committee, appointed by and responsible to the Board comprises
of three Non-Executive Directors, two of whom are Independent
Non-Executive Directors. Mr. Himendra Ranaweera is the Chairman.
The other members of the Committee during the year under review
were Ms. Minette D. A. Perera and Mr. Daya P. Wickramatunga.
Committee Meetings
The Committee held one meeting during the year under review and
all committee members attended the meeting. Chief Financial Officer
attended the meeting of the Committee by invitation.
Kahawatte Plantations PLC | Annual Report 2022 17
The Committee convened five times during the year to review
operational matters and the Quarterly Financial Statements to ensure
compliance with the mandatory statutory requirements. The Audited
Financial Statements for the year ended 31st December 2022 has
been reviewed by the Committee.
The Audit Committee is of the view that the internal controls
prevalent within the Company are satisfactory and provide a
reasonable assurance that the financial position of the Company is
well monitored and the assets safeguarded. The Committee regularly
reviews the scope of the internal audit function and the audit
programmes proposed, together with any intermediate or long term
audit plans.
The Committee reviewed the non-audit services provided by the
External Auditors to ensure that their independence of Auditors
has not been compromised. The Committee has recommended
to the Board of Directors that KPMG, Chartered Accountants be re-
appointed the Auditors for the year ending 31st December 2023
subject to the approval of the shareholders at the Annual General
Meeting. The Audit Committee will be making its recommendations
to the Board of Directors on the fees payable to the Auditors for
approval by the Board.
Ms. Minette D A Perera
Chairperson
Audit Committee
31st May 2023
Colombo
Policy
The remuneration policy of the company is formulated to attract
and retain high caliber personnel and motivate them to develop
and implement the business strategy in order to optimize long term
shareholder value creation.
The Committee is responsible for determining the compensation of
the senior management and to lay down guidelines and parameters
for the compensation structure of all management staff of the
Company.
The remuneration packages of the Company are aligned to individual
performance and to strategic priorities.
Mr. Himendra S Ranaweera
Chairman
Remuneration Committee
31st May 2023
Colombo
 18 Kahawatte Plantations PLC | Annual Report 2022
Report of the Related Party Transactions Review Committee
Purpose of the Committee
Objectives of the RPTRC is to review all Related Party Transactions
(RPTs) of the Company, prior to transactions being entered into or if
the transaction is expressed conditional on such review prior to the
completion of the transaction.
The members of the RPTRC are as follows:
Ms. Minette D. A. Perera - Chairperson - Non Executive,
Independent Director
Mr. Daya P. Wickramatunga - Non Executive,
Independent Director
Policies and Procedures
• The RPTRC reviews the RPTs of the Company in terms of the
Listing Rules and during the year under review, all RPTs the
Company entered into being Recurrent RPTs, which were carried
out on an arm’s length basis in accordance with regulations
issued by Regulators and/or determined by market forces
such review did not necessitate committee’s approval for such
transactions and/or seeking approval of the Directors.
• In its review of RPTs, RPTRC considers the terms and conditions
of the RPT, value, and the aggregate value of transactions
with the said related party during the financial year, in order
to determine whether they are carried out on an arm’s length
basis, the disclosure requirements as per the Listing Rules and
the level of approval required for the respective RPTs.
• The RPTRC ensures that all transactions with Related Parties are
in the best interests of all shareholders, adequate transparency
is maintained and is in compliance with the Listing Rules.
• The Committee has established guidelines in respect of
Recurrent RPTs to be followed by the Management of the
Company, in the Company’s dealings with Related Parties.
Related Party Transactions during the year under review
Details of the Recurrent RPTs entered into by the Company during
the year is disclosed in Note 29 to the Financial Statements.
RPTRC has reviewed the RPT’s of the Company in quarterly basis
and communicated its comments and observations to the Board
Directors.
During the year 2022, there were no non-recurrent related party
transactions and there were no recurrent related party transactions
that exceeded the thresholds that required the immediate market
disclosure or shareholder approval as required under Section 9 of the
Continuing Listing Requirements of the Colombo Stock Exchange.
Recurrent related party transactions that require disclosure in the
Annual Report are given in Note 29 of the Financial Statements.
Meetings
The Committee met four times during the year once every quarter.
Declarations
A declaration by the Board of Directors as an affirmative statement
of the compliance with the Listing Rules pertaining to Related Party
Transactions is given on page 13 of the Annual Report.
Ms. Minette D. A. Perera Chairperson
Related Party Transaction Review
Committee
31st May 2023
Colombo
 Kahawatte Plantations PLC | Annual Report 2022 19

Independent Auditor’s Report

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF KAHAWATTE PLANTATIONS PLC

Report on the Financial Statements

Opinion
We have audited the financial statements of Kahawatte Plantations PLC (“the Company”), which comprise the statement of financial position as at 31st
December 2022, and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for
the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information
set out on pages 23 to 65.

In our opinion, the accompanying financial statements of the Company give a true and fair view of the financial position of the Company as at 31st
December 2022, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Basis for Opinion

We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in
the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with
the Code of Ethics issued by CA Sri Lanka (Code of Ethics), and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current
period. These matters were addressed in the context of our audit of the Company financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.

1. Carrying Value of Consumable Biological Assets

Refer note 3.1.3 (significant accounting policy) & note 15.1 (notes to the financial statements)

Risk Description Our Response

The Company has reported consumable biological assets carried at Our audit procedures included,
fair value, amounting to Rs. 1,158 million as at 31st December 2022.
The timber trees on estates managed by the Company are classified - Obtaining understanding and assessing the design implementation
as consumable biological assets and are measured at fair value less and operating effectiveness of the key internal controls established
estimated cost to sell at each reporting date. The trees younger than in arriving the fair value of the biological assets.
5 years are carried at cost less impairment as the fair value cannot be
reliably measured. - Evaluating the competence, independence and objectivity of the
external valuation expert.
The market for timber trees is impacted by factors such as
topographical characteristics of the land, age and condition of - Obtaining estate wise census books of timber trees and compared
timber trees and the economic conditions that drives the supply and the number of timber trees with the valuation report to ensure
demand. the completeness and accuracy of the data. We also evaluated
the mathematical accuracy of valuation formulae contained in the
Management engaged an external valuation expert who is an valuation report.
incorporated valuer and a member of The Institute of Valuers of Sri
Lanka, to perform an independent valuation of the consumable - On sample basis, physically verify trees during estate visits to assess
biological assets of the Company as at reporting date. the girth and height of the respective trees.

Following key judgments and assumptions are used by the - Assessing the key assumptions and methodology used in the
independent valuer in the following areas; valuation, in particular the discount rate, market price and expected
timber content at harvest.
- Discount rate
- Expected timber content at harvest - Assessing the adequacy of the disclosures in the financial
- Value per Cubic feet statements including the description and appropriateness of the
inherent degree of subjectivity and the key assumptions.
We identified measurement of consumable biological assets as a key
audit matter, because the valuation of consumable biological assets
involved significant assumptions and judgments exercised by the
Company and external valuation expert which could be subjected to
significant level of estimation uncertainty and management biases.
 20 Kahawatte Plantations PLC | Annual Report 2022

Independent Auditor’s Report

2. Recoverability of Deferred Tax Assets

Refer note 3.6.3.2 (significant accounting policy) & note 23 (notes to the financial statements)

Risk Description Our Response

The Company has recognized deferred tax asset of Rs. 490 Mn on Our audit procedures included,
temporary differences which includes accumulated tax losses of
Rs. 1,634 Mn as at 31st December 2022. The recognition of deferred tax - Assessing the accuracy of the forecasted future taxable profit by
assets relies on the exercise of significant judgment by management evaluating historical forecasting accuracy from understanding
in respect of assessing the sufficiency of future taxable profits and the obtained during our audit, including where applicable their
probability of such future taxable profit being generated and future consistency with business plans.
reversals of existing taxable temporary differences. The Company has
considered the ability to utilize accumulated tax losses in the future - Reconciling tax losses and expiry dates to tax statements.
based on forecasted taxable profits for a period of next five years from
the reporting date. - Evaluating the adequacy of the disclosures in the financial
statements in accordance with the relevant accounting standards.
We identified the recognition of deferred tax assets as a key audit
matter, because determining the recoverability of deferred tax asset
involve forecasting the quantum of the future taxable profits likely to be
generated by the Company to offset with accumulated unutilized tax
losses as at 31st December 2022.

3. Valuation of Retirement Benefit Obligation

Refer note 3.5.1 (significant accounting policy) & note 25 (notes to the financial statements)

Risk Description Our Response

The Company has recognized retirement benefit obligation of Rs. 507 Our audit procedures included,
million as at 31st December 2022.
- Assessing the competency, objectivity and capabilities of the
The retirement benefit obligation of the Company is significant in the independent actuary engaged by the Company.
context of the total liabilities of the Company. The valuation of the
Company’s retirement benefit obligation requires significant judgment - Testing the samples of the employees’ details used in the
and estimation to be applied across numerous assumptions, including computation to the human resource records and performed
salary increases and discount rate. Minor changes in those assumptions re-computation of the post-employment benefit liabilities with the
could have a significant effect on the financial performance and financial assistance of our internal valuation specialist.
position of the Company. Management engaged an independent actuary
to assist them in the estimation of the retirement benefit obligation. - Evaluating the reasonableness of the total annual salaries used in
the computation by comparing to the historical data.
We considered the estimation of the retirement benefit obligation to be
a key audit matter due to the magnitude of the amounts recognized in - Assessing the key assumptions used in the valuation, in particular
the financial statements as well as estimation uncertainty involved in the discount rate, mortality rate and future salary increment rate.
determining the amounts
- Assessing the adequacy of the disclosures made in the financial
statements including sensitivity analysis.

4. Management’s Assessment of going concern

Refer note 36 (notes to the financial statements)

Risk Description Our Response

The Company has recorded a profit of Rs. 312 Million during the year Our audit procedures included
ended 31st December 2022 and as of that date, accumulated losses
amounted to Rs. 501 Million. Further, the Company’s current liabilities - Evaluating the performance of the Company and assessing the
exceeded its current assets by Rs. 1,456 Million as at the reporting date. significant going concern indications.
The Company has loans and borrowings of Rs. 716 million due within 12
months from 31st December 2022. - Assessing the appropriateness of key assumptions used in the
cash flow projections for period under review using the services of
However, the directors of the Company are of the opinion that the going our in-house experts and assessing the timing and mathematical
concern assumption is valid in preparation of financial statements, due accuracy of the cashflow projections.
to future growth potential of the Company.
- Assessing the adequacy of disclosures in the financial statements
We identified the assessment of the Company’s ability to continue as a (Note 36) in relation to going concern as per requirements of SLAuS
going concern as a key audit matter because the assessment of going 570.
concern is dependent upon certain management assumptions and
judgements, in particular in relation to future cash flow forecast and
the ability of the Company to obtain external financing, which may be
inherently uncertain and could be subject to management bias.
 Kahawatte Plantations PLC | Annual Report 2022 21

Independent Auditor’s Report (Contd...)

5. Revaluation of Plant & Machinery

Refer note 3.1.1 (significant accounting policy) & note 14 (notes to the financial statement

Risk Description Our Response

The Company has revalued its Plant & Machinery and reported a net Our audit procedures included,
carrying value of Rs.694.1 Mn and a revaluation gain of Rs. 122 Mn
net of tax as at 31st December 2022. - Assessing the objectivity, independence, competence and
qualifications of the external Valuer.
The Company has engaged an independent professional Valuer
with appropriate expertise to determine the fair value of the Plant - With the assistance of our own internal valuation specialists
& Machinery in accordance with recognized industry standards.
assessing the key assumptions applied and conclusions made in
Machinery are valued at fair value at the reporting date using a
market approach. The fair values of machinery are dependent on the deriving the fair value of the machinery. In addition to that, we have
valuation methodology adopted and the inputs considered in the assessed the valuation methodologies with reference to recognized
valuation model. Factors such as prevailing market conditions, the industry standards
individual nature, condition of each machineries and the expected
future income for each property directly impact fair values. - Assessing the adequacy of disclosures in relation to fair value of
Plant & Machinery in the financial statements in accordance with
We identified this as a key audit matter because of the magnitude of the relevant accounting standards
the amounts recognized in the financial statements and significant
judgments and estimates involved in assessing the fair value of the
Plant & Machinery.

Other Information
Management is responsible for the other information. The other information comprises the information included in the annual report, but
does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion
thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to
be materially misstated.
When we read the annual report, if we conclude that there is a material misstatement therein, we are required to report that fact. We have
nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting
Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either
intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these financial statement
 22 Kahawatte Plantations PLC | Annual Report 2022

Independent Auditor’s Report (Contd...)

As part of an audit in accordance with SLAuSs, we exercise professional judgment and maintain professional skepticism throughout the audit.
We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made
by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the
Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company
to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the company
audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with ethical requirements in accordance with the
Code of Ethics regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought
to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit
of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the
public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

As required by section 163 (2) of the Companies Act No. 07 of 2007, we have obtained all the information and explanations that were required
for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company.

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 2618.

CHARTERED ACCOUNTANTS
Colombo

31st May 2023

 Kahawatte Plantations PLC | Annual Report 2022 23

STATEMENT OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME
For the year ended 31st December

Notes 2022 2021

Rs.’000 Rs.’000

Revenue 5 6,261,316 4,267,216

Cost of Sales (5,400,608) (4,210,913)
Gross Profit 860,708 56,303
Other Income 6 139,543 75,399
Fair Value Gain on Biological Assets 15.4 136,913 92,290
Administrative Expenses (178,930) (134,652)
Profit from Operating Activities 7 958,234 89,340
Finance Income 8 139 550
Finance Cost 9 (397,762) (184,356)
Profit/ (Loss) before Taxation 560,611 (94,466)
Income Tax Expense 10 (248,573) (11,732)
Profit/ (Loss) for the Year 312,038 (106,198)

Other Comprehensive Income

- Items that will not be Reclassified to Profit or Loss;

Actuarial Gain on Retirement Benefit Obligation 25.3 27,784 119,134
Deferred Tax Charge on Retirement Benefit Obligation 10.3.1 (8,336) (12,509)
Surplus on Revaluation of Plant & Machinery 174,525 -
Deffered Tax Charge on Revaluation of Plant & Machinery 10.3.1 (52,358) -
Reversal/ (Charge) from Deferred Tax Effective Rate Change on Gross Revaluation Reserve (60,848) 10,921
Other Comprehensive Income for the Year, Net of tax 80,767 117,546
Total Comprehensive Income for the Year 392,805 11,348

Basic Earning/ (Loss) per Share 11 3.14 (1.07)

The Figures in brackets indicate deductions.

The Accounting Policies and Notes on pages 27 to 65 form an integral part of these Financial Statements.
 24 Kahawatte Plantations PLC | Annual Report 2022

STATEMENT OF FINANCIAL POSITION

For the year ended 31st December
Notes 2022 2021
Rs.’000 Rs.’000

ASSETS
Non Current Assets
Leasehold Right to Bare Land of JEDB/SLSPC Estates 12 152,531 148,501
Immovable Leased Assets of JEDB/SLSPC Estates
(Other than Bare Land & Biological Assets) 13 27,404 36,198
Property, Plant & Equipment 14 1,305,110 1,011,135
Biological Assets 15 3,326,226 3,316,880
4,811,271 4,512,714
Current Assets
Produce On Bearer Biological Assets 15.3 11,787 8,475
Inventories 16 781,728 416,319
Trade and Other Receivables 17 115,175 113,511
Amounts due from Related Parties 18 9,390 4,591
Cash and Bank Balances 19 36,423 29,065
954,503 571,961
Total Assets 5,765,774 5,084,675
EQUITY
Stated Capital 20 1,698,952 1,698,952
Revaluation Reserve 21 340,596 279,277
Accumulated Losses (500,634) (832,120)
1,538,914 1,146,109
LIABILITIES
Non Current Liabilities
Deferred Income 22 275,172 288,448
Deferred Tax Liability 23 511,052 140,795
Interest Bearing Loans and Borrowings 24 380,374 576,049
Retirement Benefit Obligations 25 506,542 518,467
Net Liability to Lessor of JEDB/SLSPC Estates 26 143,030 133,491
1,816,170 1,657,250
Current Liabilities
Interest Bearing Loans and Borrowings 24 715,580 765,777
Net Liability to Lessor of JEDB/SLSPC Estates 26 1,007 813
Trade and Other Payables 27 729,700 621,600
Amounts due to Related Parties 28 158,747 98,274
Bank Overdraft 19 805,656 794,852
2,410,690 2,281,316
Total Liabilities 4,226,860 3,938,566
Total Equity and Liabilities 5,765,774 5,084,675

Net Asset per Share 15.48 11.53

The Figures in brackets indicate deductions.

It is certified that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No.7 of 2007.

Vinesh Athukorala
Chief Financial Officer
The Board of Directors is responsible for the preparation and presentation of these Financial Statements.
Approved and signed for and on behalf of the Board of Directors of Kahawatte Plantations PLC

Minette D A Perera Dilhan C Fernando

Director Director

31st May 2023

Colombo
The Accounting Policies and Notes on pages 27 to 65 form an integral part of these Financial Statements.
 Kahawatte Plantations PLC | Annual Report 2022 25

STATEMENT OF CHANGES IN EQUITY

Stated Revaluation Accumulated Total
Capital Reserve Losses
Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance as at 1 January 2021 1,698,952 268,356 (832,547) 1,134,761

Total Comprehensive Income for the Year

Loss for the Year - - (106,198) (106,198)

Other Comprehensive Income

Actuarial Gain on Defined Benefit Obligation, Net of Tax - - 106,625 106,625

Reversal from Deferred Tax Effective Rate Change on Gross Revaluation Reserve - 10,921 - 10,921

Balance as at 31 December 2021 1,698,952 279,277 (832,120) 1,146,109

Balance as at 01 January 2022 1,698,952 279,277 (832,120) 1,146,109

Total Comprehensive Income for the Year

Profit for the Year - - 312,038 312,038

Other Comprehensive Income

Actuarial Gain on Defined Benefit Obligation, Net of Tax - - 19,448 19,448

Surplus on Revaluation of Plant & Machinery, Net of tax - 122,167 - 122,167

Charge from Deferred Tax Effective Rate Change on Gross Revaluation - (60,848) - (60,848)
Reserve

Balance as at 31 December 2022 1,698,952 340,596 (500,634) 1,538,914

The Figures in brackets indicate deductions.

The Accounting policies and notes on pages 27 to 65 form an integral part of these Financial Statements.
 26 Kahawatte Plantations PLC | Annual Report 2022

STATEMENT OF CASH FLOWS

For the year ended 31 December
Notes 2022 2021
Rs.’000 Rs.’000

CASH FLOW FROM OPERATING ACTIVITIES

Profit/ (Loss) before Taxation 560,611 (94,466)

Adjustments for:-
Depreciation/Amortization 7 232,017 220,791
Write-offs/Provisions (Inventory/Other Receivables) 16 / 17 6,692 262
Write-offs/Provisions (CWIP / Immature Plantations) 14 / 15 86,031 1,599
ESC Write-offs 7 3,466 12,955
Profit from disposal of property plant and equipment 6 - (2,494)
Net Interest expense 9 397,623 183,806
Provision for Retirement Benefit Obligations 25.3 106,956 95,799
Fair value gain on Biological Assets 15.4 (136,913) (92,290)
Change in consumable biological assets due to harvest 15.1 13,556 11,242
Amortization of Deferred Income 6 (16,217) (15,763)
Operating Profit before Working Capital Changes 1,253,822 321,441

(Increase)/Decrease in Inventories 16 (371,798) 26,320

Increase in Trade and Other Receivables 17 (5,434) (6,421)
(Increase)/Decrease in Amounts due from Related Companies 18 (4,799) 3,019
Increase in Trade and Other Payables 27 100,095 33,679
Increase/ (Decrease) in Amounts due to Related Companies 28 60,473 (14,940)
1,032,360 363,098

Net Interest Paid (350,626) (163,807)

Payment of Retirement Benefit Obligations 25 & 27 (105,991) (85,642)
Grants/ Deferred Income Received 22 2,941 20,000
Net Cash flow generated from Operating Activities 578,684 133,649

CASH FLOW FROM INVESTING ACTIVITIES

Investment in Immature Bearer Biological Assets 15.2 (84,706) (61,152)

Investment in Immature Consumable Biological Assets 15.1 (5,056) (19)
Purchase of Property Plant & Equipment 14.1.f (164,976) (155,681)
Proceeds from disposal of property plant and equipment 6 - 2,494
Net Cash used in Investing Activities (254,738) (214,358)

CASH FLOW FROM FINANCING ACTIVITIES

Loans Received 81,812 226,026
Loan Repayments (382,067) (114,072)
Lease Rentals Paid to JEDB/SLSPC 26.4 (19,659) (18,618)
Lease payments to Central Finance PLC 24.5 (7,478) -
Net Cash generated/(used) from Financing Activities (327,392) 93,336

Net Increase/(Decrease) in Cash & Cash Equivalents (3,446) 12,627

Cash & Cash Equivalents at the beginning of the year 19 (765,787) (778,414)

Cash & Cash Equivalents at the end of the year (769,233) (765,787)

Figures in brackets indicate deductions.

The Accounting Policies and Notes on pages 27 to 65 form an integral part of these Financial Statements.

Notes to the Financial Statements
1. REPORTING ENTITY
1.1 Domicile and Legal Form
Kahawatte Plantations PLC is a Public Limited Liability
Company incorporated and domiciled in Sri Lanka, under
the Companies Act No 17 of 1982 (The Company re-
registered under the Companies Act No.7 of 2007) in terms
of the provisions of the Conversion of Corporations and
Government Owned Businesses Undertakings in to Public
Companies Act No 23 of 1987. The registered office of the
Company is located at No 111, Negombo Road, Peliyagoda,
and Plantations are situated in the planting regions of
Kahawatte and Nawalapitiya.
1.2 Principal Activities and Nature of Operation
The company is involved in the cultivation, manufacture
and sale of Tea and Rubber and other agricultural crops.
1.3 Parent and Ultimate Parent Company
The Company’s parent undertaking is Forbes Plantations
(Private) Limited and the ultimate parent company is MJF
Holdings Limited which are incorporated in Sri Lanka.
1.4 Management Contract
The Company is presently managed by Forbes Plantations
(Private.) Limited. The Management Agreement which
came into effect from 17 August 1997 is initially for a period
of five years and with a provision for extension by a further
period by mutual consent of both parties.
Consequent to the agreement reached by the company
with the Ministry of Plantation Industries JEDB and SLSPC
on 4 August 2003 the basis of Management Fees was
restructured to base on Earnings Before Interest, Tax,
Depreciation and Amortization (EBITDA).
1.5 Number of Employees
The number of employees at the end of the year was
4,553 (2021-5,175) in relation to Note - 25. There were no
material issues pertaining to employees and industrial
relations for the year ended 31st December 2022.
2. BASIS OF PREPARATION
2.1 Statement of Compliance
The financial statements of the Company comprise the
statement of financial position, the statement of profit
or loss and other comprehensive income, statement of
changes in equity and statement of cash flow together
with the notes to the financial statements
The Financial Statements have been prepared in accordance
with the Sri Lanka Accounting Standards (SLFRS/LKAS)
promulgated by the Institute of Chartered Accountants of
Sri Lanka and with the requirements of the Companies Act
No.07 of 2007. Financial Statements, except information on
Cash Flows, have been prepared following the accrual basis
of accounting.
The financial statements were authorized for issue by the
Board of Directors on 31st May 2023
Kahawatte Plantations PLC | Annual Report 2022 27
2.2 Basis of Measurement
Financial Statements have been prepared on the historical
cost basis except for the following material items in the
statement of financial position.
1. Biological assets are measured at fair value less costs
to sell
2. Retirement benefit obligation recognized at present
value based on actuarial valuation.
3. Plant and Machineries recognized based on Fair value.
2.3 Functional and Presentation Currency
The Financial Statements are prepared and presented in
Sri Lankan Rupees. (Rs.), which is the Company’s functional
currency. All financial information presented in Sri Lankan
Rupees has been given to the nearest thousand, unless
stated otherwise.
There was no change in the Company’s presentation and
functional currency during the year under review.
2.4 Use of Estimates and Judgments
The preparation of financial statements in conformity with
Sri Lanka Accounting Standard requires management to
make judgments, estimates and assumptions that affect
the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates & judgmental
decisions.
Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised,
if the revision affects only that period or in the period of
revision and future periods, if the revision affects both
current and future periods and if any future periods
affected.
Information about critical estimates and judgments in
applying accounting policies that have the most significant
effect on the amounts recognized in the financial
statements is included in the following notes
• Note 2.4.1 - Fair value of plant & machinery
• Note 2.4.2 - Useful lifetime of the property, plant, and
equipment
• Note 3.2- Impairment on non-financial assets.
• Note 2.4.3 - Measurement of defined benefit obligation:
key actuarial assumptions
• Note 2.4.4 - Provisions for liabilities, commitments, and
contingencies
• Note 36 - Going concern basis
• Note 15.1 - Consumable Biological Assets
• Note 15.3 - Produce on Bearer Biological Assets
• Note 23 - Deferred tax assets
2.4.1. Fair value of plant & machinery
The Company measures plant & machinery at revalued
amounts with changes in fair value being recognised in
Equity through Other Comprehensive
 28 Kahawatte Plantations PLC | Annual Report 2022
NOTES TO THE FINANCIAL STATEMENTS
Income (OCI). Valuations are performed every three years
to ensure that the fair value of a revalued asset does not
differ materially from it carrying amount. The Company
engages independent professional valuer Mr. Chandrasena
Chartered Valuation Surveyor to assess fair value of plant
and machinery in terms of Sri Lanka Accounting Standard
on “Fair Value Measurement” (SLFRS13). Based on the
valuation techniques and inputs used, plant & machinery
was classified at level 3 in the fair value hierarchy.
The valuation techniques, significant unobservable inputs,
key assumptions used to determine the fair value of the
plant & machinery, and sensitivity analysis are provided in
Note 14.
2.4.2. Useful lifetime of the property, plant, and equipment
The Company reviews the residual values, useful lives, and
methods of depreciation of property, plant, and equipment
at each reporting date. Judgement of the Management is
exercised in the estimation of these values, rates, methods
and hence they are subject to uncertainty. Refer Note
3.1.1.6 for more details.
2.4.3. Measurement of defined benefit obligation:
key actuarial assumptions
The cost of defined benefit obligation is determined
using actuarial valuations. The actuarial valuation involves
making assumptions about discount rates, future salary
increases and mortality rates, etc. Due to the complexity
of the valuation, the underlying assumptions and its long-
term nature, a defined benefit obligation is highly sensitive
to changes in these assumptions. All assumptions are
reviewed at each reporting date. Refer Note 25.4 for
the assumptions used to determine defined benefit
obligations. Sensitivity analysis to key assumptions is
disclosed in Note 25.5.
2.4.4. Provisions for liabilities and contingencies
Management has made judgments as to the likelihood of
any claim succeeding in making provisions. The time of
concluding legal claims is uncertain, as is the amount of
possible outflow of economic benefits. Timing and cost
ultimately depend on the due process in respective legal
jurisdictions. Refer Note 34.
2.5 Materiality and Aggregate
Each material class of similar items is presented separately
in the financial statements. Items of dissimilar nature
or function are presented separately unless they are
immaterial as permitted by LKAS 1- Presentation of
Financial Statements Statements’ and amendments to the
LKAS 1 on‘Disclosure Initiative’.
Financial assets and financial liabilities are offset and the
net amount reported in the statement of financial position,
only when there is a legally enforceable right to offset the
recognised amounts and there is an intention to settle on
net basis, or to realise the assets and settle the liability
simultaneously.
(Contd...)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied
consistently to all periods presented in these Financial
Statements, unless otherwise indicated.
3.1 Assets and Bases of Their Valuation
Assets classified as current assets in the Statement of
Financial Position are cash and those which are expected
to realize in cash, during the normal operation cycle of the
Company’s business, or within one year from the Reporting
date, whichever is shorter. Assets other than current assets
are those, which the Company intends to hold beyond a
period of one year from the date of Statement of financial
Position.
3.1.1 Property, Plant and Equipment
3.1.1.1 Recognition and measurement
Property, Plant, and Equipment are recognized if it is
probable that future economic benefits associated with
the asset will flow to the Company and the cost can be
reliably measured.
The Property, Plant and Equipment except plant and
machinery are recorded at cost less accumulated
depreciation and impairment losses.
Items of property, plant and equipment are derecognised
upon disposal or when no future economic benefits
are expected from its use. Any gain or loss arising on
derecognition of the asset is included in the income
statement in the year the asset is derecognised.
The cost of property, plant and equipment is the cost of
purchase or construction together with any other expenses
directly attributable to bringing the assets to its working
condition for its intended use.
Expenditure incurred for the purpose of acquiring,
extending or improving assets of permanent nature by
means of which to carry on the businesses or to increase
the earning capacity of the business has been treated as
capital expenditure.
The carrying values of property, plant and equipment
are reviewed for impairment when events or changes in
circumstances indicate that the carrying value may not be
recoverable.
Gains and losses on disposal of an item of property, plant
and equipment are determined by comparing the proceeds
from disposal with the carrying amount of property, plant
and equipment, and are recognised net within other
income in profit or loss.
A revaluation of plant and machinery is done every 3
years or when there is a substantial difference between
the fair value and the carrying amount of the plant and
machinery, and is undertaken by professionally qualified
valuers Increases in the carrying amount on revaluation are

NOTES TO THE FINANCIAL STATEMENTS
credited to the revaluation reserve in shareholders’ equity.
Decreases that offset previous increases of the same
individual asset are charged against revaluation reserve
directly in equity. All other decreases are expensed in profit
and loss.
3.1.1.2 Subsequent Costs
The cost of replacing part of an item of property, plant
and equipment is recognized in the carrying amount of
the item if it is probable that the future economic benefits
embodied within the part will flow to the Company and its
cost can be measured reliably.
The carrying amount of those parts that are replaced is
derecognized. The costs of the day-to-day servicing of
property, plant and equipment are recognized in profit or
loss as incurred.
Permanent Land Development Costs
Permanent land development costs are those costs incurred
to make major changes to land contours to build new
access roads and other major infrastructure development.
Such expenditure on leasehold land has been capitalised
and amortised over the remaining lease period.
Permanent impairments to land development costs are
charged to the Income Statement in full or reduced to the
net carrying amounts of such asset in the year of occurrence
after ascertaining the loss.
3.1.1.3 Infilling Cost on Bearer Biological Assets
Where infilling results in an increase in the economic life of
the relevant field beyond its previously assessed standard
of performance, the costs are capitalized and depreciated
over the useful life or unexpired lease period whichever is
lower applicable to mature plantations.
Infilling costs that are not capitalised have been charged
to the Income Statement in the year in which they are
incurred.
3.1.1.4 Borrowing Costs
Borrowing costs are recognised as an expense in the
period in which they are incurred, except to the extent
where borrowing costs that are directly attributable to
the acquisition, construction, or production of a qualifying
asset, which takes a substantial period of time to get
ready for its intended use or sale, are capitalised as part of
the specific asset.
The amount of borrowing costs which are eligible for
capitalisation is determined in accordance with LKAS 23-
“Borrowing Costs”. Borrowing costs incurred in respect
of specific loans that are utilised for field development
activities have been capitalised as a part of the cost of
the relevant Immature Plantation. The capitalisation will
cease when the crops are ready for commercial harvest.
The amounts so capitalised and the capitalisation rates are
disclosed in the notes to the Financial Statements.
Kahawatte Plantations PLC | Annual Report 2022 29
(Contd...)
3.1.1.5 Capital work-in-progress
Capital work-in-progress represents the accumulated
cost of materials and other costs directly related to the
construction of an asset. Capital work-in- progress is
transferred to the respective asset accounts at the time it
is substantially completed and ready for its intended use.
3.1.1.6 Depreciation and Amortization
3.1.1.6.1 Depreciation
Depreciation is calculated by using a straight-line method
on the cost or revalued amounts of all property, plant and
equipment, in order to write off such amounts over the
estimated useful economic life of such assets. The leased
assets are depreciated over the shorter of the lease term
and their useful lives.
Improvement to land Over 10-40 Years
Water Links/ Roads Over 20 Years
Plant and Machinery Over 13 1/3 -20 Years
Motor Vehicles Over 05 Years
Equipment Over 08 Years
Furniture and Fittings Over 10 Years
Mature Plantations
-Tea Over 33 1/3 Years
-Rubber Over 20 Years
-Minor Crop Over 3-25 Years
Depreciation of an asset begins when it is available for
use and ceases at the earlier of the date that the asset is
classified as held for sale and the date that the asset is
derecognized. Leased assets are depreciated over the
shorter of the leased term and their useful lives.
The useful life, residual values and depreciation methods of
assets are reviewed, and adjusted if required, at the end of
each financial year.
3.1.1.6.2 Amortisation
The leasehold rights of assets taken over from JEDB / SLSPC
are being amortized in equal amounts, over the shorter of
lease period and economic useful lives as follows.
Bare Land Over 53 Years
Land Development Cost Over 30 Years
Buildings Over 25 Years
Improvement to Land Over 30 Years
Water Supply Scheme Over 33 Years
Mature Plantations
-Tea Over 30 Years
-Rubber Over 20 Years
-Minor Crop Over 3-25 Years
3.1.2 Produce on Bearer Biological assets
The Company recognizes its agricultural produce prior to
harvest separately from its bearer plant. Such agricultural
produce prior to harvest continues to be in the scope
of LKAS 41 and measured at fair value less costs to sell.
Changes in the fair value of such agricultural produce is
recognized in profit or loss at the end of each reporting
period.
 30 Kahawatte Plantations PLC | Annual Report 2022
NOTES TO THE FINANCIAL STATEMENTS
When deriving the estimated quantity, the Company limits
it to one harvesting cycle and the quantity is ascertained
based on the last day of the harvest in the immediately
preceding cycle. In order to ascertain the fair value of
produce growing on trees, 50% of the estimated crop in
that harvesting cycle is considered for the valuation of
the produce, the Company uses bought leaf rate (current
month) less cost of harvesting and transport
3.1.3 Biological Assets
Biological Assets are classified as mature biological asset
and immature biological assets. Mature
biological assets are those that have attained harvestable
specifications or are able to sustain regular harvests.
Immature biological assets are those that have not yet
attained harvestable specifications. Tea, Rubber and other
plantations are treated as biological assets.
Biological assets are further classified as bearer biological
assets and consumable biological assets. Bearer biological
assets includes Tea, Rubber trees and minor crops those
that are not intended to be sold or harvested, however
used to grow for harvesting agricultural produce from
such biological assets. Consumable biological assets
includes managed timber those that are to be harvested as
agricultural produce or sold as biological assets.
The company recognizes the biological assets when,
and only when, the entity controls the assets as a result
of past event, it is probable that future economic benefits
associated with the assets will flow to the entity and the fair
value or cost of the asset can be measured reliably.
The cost of new planting, replanting, interplanting and
crop diversification incurred between the time of field
development and being ready for commercial harvesting
are classified as immature plantations. Further the general
charges incurred on the plantation are apportioned on
labour days spent on respective replanting and new
planting, and capitalized on immature trees. The remaining
portion of the general charges is charged to the statement
of comprehensive income in the year in which it is incurred.
No depreciation is provided for immature plantation. The
total expenditure incurred on bearer biological assets (Tea,
Rubber and minor crop) which come into bearing during
the year have been transferred to mature plantations and
depreciated over its useful lifetime. Expenditure incurred
on consumable biological asset is initially recorded at cost
thereafter at fair value on each reporting period.
Permanent impairments to biological assets are charged to
the statement of Comprehensive Income in full or reduced
to the net carrying amounts of such asset in the year of
occurrence after ascertaining the loss. The bearer biological
assets are recorded at cost less accumulated depreciation
and accumulated impairment losses, if any in terms of LKAS
16 - Property Plant and Equipment as per ruling issued by
the Institute of Chartered Accountants of Sri Lanka.
The managed timber are measured on initial recognition
and at the end of each reporting period at its fair value less
cost to sell interms of LKAS 41. The cost is treated as an
(Contd...)
approximation to fair value of young plants as the impact
on biological transformation of such plants to price during
the period is immaterial. The fair value of timber trees are
measured using DCF method taking in to consideration
the current market prices of timber, applied to expected
timber content of a tree at the maturity.
The company recognises its agricultural produce prior to
harvest separately from its bearer plants. Such agricultural
produce prior to harvest continues to be in the scope
of LKAS 41 and measured at fair value less costs to sell.
Changes in the fair value of such agricultural produce is
recognised in the profit or loss at the end of each reporting
period.
3.1.4 Right of use of Assets
3.1.4.1 Recognition
At inception of a contract, the Company assesses whether
a contract is, or contains, a lease. A contract is, or contains,
a lease if the contract conveys the right to control the use
of an identified asset for a period of time in exchange for
consideration. To assess whether a contract conveys the
right to control the use of an identified asset, the Company
uses the definition of a lease in SLFRS 16.
As a lessee
At commencement or on modification of a contract that
contains a lease component, the Company allocates the
consideration in the contract to each lease component on
the basis of its relative standalone prices.
However, for the leases of property, the Company has
elected not to separate non-lease components and account
for the lease and non-lease components as a single lease
component.
3.1.4.2 ROU Asset
The Company recognises a right-of-use asset and a lease
liability at the lease commencement date. The right-of-
use asset is initially measured at cost, which comprises the
initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus
any initial direct costs incurred and an estimate of costs
to dismantle and remove the underlying asset or to restore
the underlying asset or the site on which it is located, less
any lease incentives received.
Company applies the cost model for the subsequent
measurement of the ROU asset and accordingly, the
right-of use asset is depreciated using the straight-line
method from the commencement date to the end of the
lease term, unless the lease transfers ownership of the
underlying asset to the Company by the end of the lease
term or the cost of the right-of-use asset reflects that the
Company will exercise a purchase option. In that case the
right-of-use asset will be depreciated over the useful life
of the underlying asset, which is determined on the same
basis as those of property and equipment. In addition, the
right-of-use asset is periodically reduced by impairment
losses, if any, and adjusted for certain remeasurements of
the lease liability.

NOTES TO THE FINANCIAL STATEMENTS
3.1.4.3 Depreciation Expenses
Depreciation expenses has been charged to income
statement under other operating and administration
expenses.
3.1.4.4 Lease Liabilities
The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease
or, if that rate cannot be readily determined, the Company’s
incremental borrowing rate. Generally, the Company uses
its incremental borrowing rate as the discount rate.
The Company determines its incremental borrowing rate
by obtaining interest rates from various external
financing sources and makes certain adjustments to reflect
the terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease
liability comprise the following:
• fixed payments, including in-substance fixed payments;
• variable lease payments that depend on an index or a
rate, initially measured using the index or rate as at the
commencement date;
• amounts expected to be payable under a residual value
guarantee; and
• the exercise price under a purchase option that the
Company is reasonably certain to exercise, lease
payments in an optional renewal period if the Company
is reasonably certain to exercise an extension option,
and penalties for early termination of a lease unless the
Company is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the
effective interest method. It is remeasured when there is
a change in future lease payments arising from a change
in an index or rate, if there is a change in the Company’s
estimate of the amount expected to be payable under
a residual value guarantee, if the Company changes
its assessment of whether it will exercise a purchase,
extension, or termination option or if there is a revised in-
substance fixed lease payment
3.1.4.5 Interest expenses on lease liabilities
Interest expense is calculated by using the effective interest
rate method and is recognised as finance expenses in the
Income Statement.
3.1.4.6 Presentation of ROU asset and lease liabilities
The Company presents right-of-use assets that do not
meet the definition of investment property in separate line
as ‘Right-of-use assets’ and lease liabilities within ‘Interest
bearing borrowings’ in the Statement of Financial Position.
3.1.4.7 Short term leases and leases of low-value assets
The Company has elected not to recognise right-of- use
assets and lease liabilities for leases of low-value assets
and short-term leases. The Company recognises the lease
payments associated with these leases as an expense on a
straight-line basis over the lease term.
Kahawatte Plantations PLC | Annual Report 2022 31
(Contd...)
3.2 Financial Instruments
(a) Recognition and initial measurement
Trade receivables are initially recognised when they are
originated. All other financial assets and financial liabilities
are initially recognised when the Company becomes a
party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without
a significant financing component) or financial liability
is initially measured at fair value plus, for an item not at
FVTPL, transaction costs that are directly attributable
to its acquisition or issue. A trade receivable without a
significant financing component is initially measured at the
transaction price.
(b) Financial assets - Classification and subsequent
measurement
On initial recognition, a financial asset is classified as
measured at: amortised cost; FVOCI - debt investment;
FVOCI - equity investment; or FVTPL.
Financial assets are not reclassified subsequent to their
initial recognition unless the Company changes its business
model for managing financial assets, in which case all
affected financial assets are reclassified on the first day
of the first reporting period following the change in the
business model. A financial asset is measured at amortised
cost if it meets both of the following conditions and is not
designated as at FVTPL:
- it is held within a business model whose objective is to
hold assets to collect contractual cash flows; and
- its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest
on the principal amount of outstanding.
A debt investment is measured at FVOCI if it meets both of
the following conditions and is not designated as at FVTPL:
- it is held within a business model whose objective is
achieved by both collecting contractual cash flows and
selling financial assets; and
- its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest
on the principal amount outstanding.
On initial recognition of an equity investment that is not
held for trading, the Company may irrevocably elect to
present subsequent changes in the investment’s fair
value in OCI. This election is made on an investment-by-
investment basis.
All financial assets not classified as measured at amortised
cost or FVOCI as described above are measured at FVTPL.
This includes all derivative financial assets. On initial
recognition, the Company may irrevocably designate a
financial asset that otherwise meets the requirements to
be measured at amortised cost or at FVOCI as at FVTPL if
doing so eliminates or significantly reduces an accounting
mismatch that would otherwise arise.
 32 Kahawatte Plantations PLC | Annual Report 2022
NOTES TO THE FINANCIAL STATEMENTS
Financial assets - Business model assessment:
The Company makes an assessment of the objective of
the business model in which a financial asset is held at
a portfolio level because this best reflects the way the
business is managed and information is provided to
management. The information considered includes:
- the stated policies and objectives for the portfolio
and the operation of those policies in practice. These
include whether management’s strategy focuses on
earning contractual interest income, maintaining a
particular interest rate profile, matching the duration
of the financial assets to the duration of any related
liabilities or expected cash outflows or realising cash
flows through the sale of the assets;
- how the performance of the portfolio is evaluated and
reported to the Company’s management;
- the risks that affect the performance of the business
model (and the financial assets held within that
business model) and how those risks are managed;
- how managers of the business are compensated
e.g. whether compensation is based on the fair value
of the assets managed or the contractual cash flows
collected; and
- the frequency, volume and timing of sales of financial
assets in prior periods, the reasons for such sales and
expectations about future sales activity.
Transfers of financial assets to third parties in transactions
that do not qualify for de-recognition are not considered
sales for this purpose, consistent with the Company’s
continuing recognition of the assets. Financial assets
that are held for trading or are managed and whose
performance is evaluated on a fair value basis are measured
at FVTPL.
Financial assets -Assessment whether contractual cash
flows are solely payments of principal and interest:
For the purposes of this assessment, ‘principal’ is defined
as the fair value of the financial asset on initial recognition.
‘Interest’ is defined as consideration for the time value of
money and for the credit risk associated with the principal
amount outstanding during a particular period of time
and for other basic lending risks and costs (e.g. liquidity risk
and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are
solely payments of principal and interest, the Company
considers the contractual terms of the instrument. This
includes assessing whether the financial asset contains a
contractual term that could change the timing or amount
of contractual cash flows such that it would not meet
this condition. In making this assessment, the Company
considers:
- contingent events that would change the amount or
timing of cash flows;
(Contd...)
- terms that may adjust the contractual coupon rate,
including variable-rate features;
- prepayment and extension features; and
- terms that limit the Company claim to cash flows from
specified assets (e.g. non-recourse features).
A prepayment feature is consistent with the solely payments
of principal and interest criterion if the prepayment amount
substantially represents unpaid amounts of principal
and interest on the principal amount outstanding,
which may include reasonable additional compensation
for early termination of the contract. Additionally, for a
financial asset acquired at a discount or premium to its
contractual par amount, a feature that permits or requires
prepayment at an amount that substantially represents
the contractual par amount plus accrued (but unpaid)
contractual interest (which may also include reasonable
additional compensation for early termination) is treated
as consistent with this criterion if the fair value of the
prepayment feature is insignificant at initial recognition.
Financial assets at These assets are subsequently
FVTPL measured at fair value. Net gains
and losses, including any interest or
dividend income, are recognised in
profit or loss.
Financial assets at These assets are subsequently
amortised cost measured at amortised cost using
the effective interest method.
The amortised cost is reduced by
impairment losses. Interest income,
foreign exchange gains and losses
and impairment are recognised in
profit or loss. Any gain or loss on
derecognition is recognised in profit
or loss.
Debt investments at These assets are subsequently
FVOCI measured at fair value. Interest
income calculated using the effective
interest method, foreign exchange
gains and losses and impairment are
recognised in profit or loss. Other
net gains and losses are recognised
in OCI. On derecognition, gains
and losses accumulated in OCI are
reclassified to profit or loss.
Equity investments at These assets are subsequently
FVOCI measured at fair value. Dividends
are recognised as income in profit
or loss unless the dividend clearly
represents a recovery of part of the
cost of the investment. Other net
gains and losses are recognised in
OCI and are never reclassified to
profit or loss.

NOTES TO THE FINANCIAL STATEMENTS
Financial liabilities - Classification, subsequent
measurement and gains and losses
Financial liabilities are classified as measured at amortised
cost or FVTPL. A financial liability is classified as at FVTPL
if it is classified as held-for-trading, it is a derivative
or it is designated as such on initial recognition. Financial
liabilities at FVTPL are measured at fair value and net gains
and losses, including any interest expense, are recognised
in profit or loss. Other financial liabilities are subsequently
measured at amortised cost using the effective interest
method. Interest expense and foreign exchange gains and
losses are recognised in profit or loss. Any gain or loss on
derecognition is also recognised in profit or loss.
(c) Derecognition Financial Assets
The Company derecognizes a financial asset when the
contractual rights to the cash flows from the financial asset
expire, or it transfers the rights to receive the contractual
cash flows in a transaction in which substantially all of
the risks and rewards of ownership of the financial asset
are transferred or in which the Company neither transfers
nor retains substantially all of the risks and rewards of
ownership and it does not retain control of the financial
asset.
The Company enters into transactions whereby it
transfers assets recognised in its statement of financial
position, but retains either all or substantially all of the risks
and rewards of the transferred assets. In these cases, the
transferred assets are not derecognised.
Financial liabilities
The Company derecognises a financial liability when its
contractual obligations are discharged or cancelled, or
expire. The Company also derecognises a financial liability
when its terms are modified and the cash flows of the
modified liability are substantially different, in which case
a new financial liability based on the modified terms is
recognised at fair value.
On derecognition of a financial liability, the difference
between the carrying amount extinguished and the
consideration paid (including any non-cash assets
transferred or liabilities assumed) is recognised in profit or
loss.
(d) Offsetting
Financial assets and financial liabilities are offset and
the net amount presented in the statement of financial
position when, and only when, the Company currently has
a legally enforceable right to set off the amounts and it
intends either to settle them on a net basis or to realise the
asset and settle the liability simultaneously.
Impairment policy:
Financial instruments and contract assets Loss
allowances for trade receivables is always measured at an
amount equal to lifetime ECLs.
When determining whether the credit risk of a financial
asset has increased significantly since initial recognition
and when estimating ECLs, the Company considers
reasonable and supportable information that is relevant
and available
Kahawatte Plantations PLC | Annual Report 2022 33
(Contd...)
without undue cost or effort. This includes both quantitative
and qualitative information and analysis, based on the
Company’s historical experience and informed credit
assessment and including forward-looking information.
The Company assumes that the credit risk on a financial
asset has increased significantly if it is more than 30 days
past due.
The Company considers a financial asset to be in default
when:
- the borrower is unlikely to pay its credit obligations to
the Company in full, without recourse by the Company
to actions such as realising security (if any is held); or
- the financial asset is more than 180 days past due.
Lifetime ECLs are the ECLs that result from all possible
default events over the expected life of a financial
instrument.
12-month ECLs are the portion of ECLs that result from
default events that are possible within the 12 months after
the reporting date (or a shorter period if the expected life
of the instrument is less than 12 months).
The maximum period considered when estimating ECLs is
the maximum contractual period over which the Company
is exposed to credit risk.
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses.
Credit losses are measured as the present value of all cash
shortfalls (i.e. the difference between the cash flows due
to the entity in accordance with the contract and the cash
flows that the Company expects to receive).
ECLs are discounted at the effective interest rate of the
financial asset.
Credit-impaired financial assets
At each reporting date, the Company assesses whether
financial assets carried at amortised cost and debt
securities at FVOCI are credit-impaired. A financial asset
is ‘credit-impaired’ when one or more events that have a
detrimental impact on the estimated future cash flows of
the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes
the following observable data:
- significant financial difficulty of the borrower or issuer;
- a breach of contract such as a default or being more
than 365 days past due;
- the restructuring of a loan or advance by the Company
on terms that the Company would not consider
otherwise;
 34 Kahawatte Plantations PLC | Annual Report 2022
NOTES TO THE FINANCIAL STATEMENTS
- it is probable that the borrower will enter bankruptcy
or other financial reorganization; or
- the disappearance of an active market for a security
because of financial difficulties.
Presentation of allowance for ECL in the statement of
financial position
Loss allowances for financial assets measured at amortised
cost are deducted from the gross carrying amount of the
assets.
Write-off
The gross carrying amount of a financial asset is written
off when the Company has no reasonable expectations
of recovering a financial asset in its entirety or a portion
thereof. For individual customers, the Company has a policy
of writing off the gross carrying amount when the financial
asset is 365 days past due based on historical experience
of recoveries of similar assets. For corporate customers,
the Company individually makes an assessment with
respect tothe timing and amount of write-off based on
whether there is a reasonable expectation of recovery. The
Company expects no significant recovery from the amount
written off. However, financial assets that are written off
could still be subject to enforcement activities in order
to comply with the Company’s procedures to recovery of
amounts due.
3.3 Inventories
3.3.1 Finished Goods Manufactured From Agricultural
Produce
These are valued at the lower of cost and estimated net
realizable value, after making due allowance for obsolete
and slow moving items. Net realizable value is the price
at which stocks can be sold in the normal course of
business after allowing for cost of realisation and/or cost of
conversion from their existing state to saleable condition.
3.3.2 Input Materials, Spares and Consumables
These are valued at actual cost on weighted average basis.
3.3.3. Agricultural Produce Harvested from Biological Assets
Agricultural produce harvested from its biological assets
are measured at their fair value less cost to sell at the point
of harvest.
3.3.4 Growing Crop Nurseries
Nursery cost includes the cost of direct materials, direct
labor and an appropriate proportion of directly attributable
overheads, less provision for overgrown plants.
3.4 Impairment of Non-Financial Assets
The company assesses at each reporting date whether
there is an indication that an asset may be impaired. If any
such indication exists, or when annual impairment testing
for an asset is required, the Company estimates the asset’s
recoverable amount. An asset’s recoverable amount is the
higher of an asset’s or cash generating unit’s fair value less
costs to sell and its value in use and is determined for an
individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other
(Contd...)
assets or group of assets. Where the carrying amount
of an asset exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable
amount. In assessing value in use, the estimated future
cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market
assessments of the time value of money and the risks
specific to the asset.
Impairment losses of continuing operations are recognized
in the profit or loss in those expense categories consistent
with the function of the impaired asset.
For assets, an assessment is made at each reporting date
as to whether there is any indication that previously
recognised impairment losses may no longer exist or may
have decreased. If such indication exists, the Company
makes an estimate of recoverable amount. A previously
recognised impairment loss is reversed only if there has
been a change in the estimates used to determine the
asset’s recoverable amount since the last impairment loss
was recognised. If that is the case, the carrying amount
of the asset is increased to its recoverable amount. That
increased amount cannot exceed the carrying amount
that would have been determined, net of depreciation,
had no impairment loss been recognised for the asset
in prior years. Such reversal is recognised in the Income
Statement unless the asset is carried at revalued amount, in
which case the reversal is treated as a revaluation increase.
3.5 Liabilities and Provisions
3.5.1 Employee Retirement Benefits
a) Short-term employee benefits
The costs of all short-term employee benefits (that are
expected to be settled wholly within 12 months after
the end of the period in which the employees render
the related service) are recognised during the period in
which the employee renders the related service. The
accruals for employee entitlements to benefits such as
salaries, bonuses and annual leave represent the amounts
which the Company has a present obligation to pay as a
result of the employee’s services and the obligation can
be measured reliably. The accruals have been calculated
at undiscounted amounts based on current salary levels at
the reporting date
b) Defined contribution plans
EPF, ESPS, CPPS & ETF All employees who are eligible for
defined Provident Fund Contributions and Employees Trust
Fund Contributions are covered by relevant contributory
funds in line with respective statutes.
c) Defined Benefit Plans - Gratuity
The Retirement Benefit Plan adopted is as required under
the Payment of Gratuity Act No 12 of 1983 and the Indian
Repatriate Act No. 34 of 1978 to eligible employees. This
item is grouped under Retirement Benefit Obligations in
the Statement of Financial Position.
Provision for Gratuity on the employees of the Company is
on an actuarial basis, using the Projected Unit Credit (PUC)
method and in conformity of LKAS - 19 “Employee Benefits”.

NOTES TO THE FINANCIAL STATEMENTS
The Company expects to carry out actuarial valuation
once in every year. The Actuarial Valuation was carried out
by a professionally qualified firm of actuaries M/s Piyal S.
Goonetilleke & Associates.
However according to the Payment of Gratuity Act No. 12
of 1983, the liability for payment to an employee arises
only after the completion of 5 years continued services.
The liability is not externally funded. The key assumptions
used in determining the retirement benefit obligations are
given in Note 25.4.
Remeasurements of the defined benefit liability, which
comprise actuarial gains and losses, are recognised
immediately in OCI. The Company determines the interest
expense on the defined benefit liability for the period by
applying the discount rate used to measure the defined
benefit obligation at the beginning of the annual period to
the then defined benefit liability, taking into account any
changes in the defined benefit liability during the period
as a result of benefit payments. Interest expense and other
expenses related to defined benefit plans are recognised
in profit or loss.
3.5.2 Provisions, Contingent Liabilities and Contingent All expenditure incurred in the running of the business
Assets
Provisions are recognized when the Company has a present
obligation (legal or constructive) as a result of a past
event, where it is probable that an outflow of resources
embodying economic benefits will be required to settle
the obligation and a reliable estimate can be made of the
amount of the obligation.
When the company expects some or all of a provision to be
reimbursed, the reimbursement is recognised as a separate
assets but only when the reimbursement is virtually
certain. The expense relating to any provision is presented
in the income statement net of any reimbursement. If the
effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows
at a pre- tax rate that reflects current market assessments
of the time value of money and, where appropriate, the
risks specific to the liability. Where discounting is used,
the increase in the provision due to the passage of time is
recognized as an interest expense.
All contingent liabilities are disclosed as a note to the
financial statements unless the outflow of resources is
remote. Contingent assets are disclosed, where inflow of
economic benefit is probable.
3.5.3 Deferred Income
3.5.3.1 Grants and Subsidies
Grants are recognised where there is reasonable assurance
that the grant will be received and all attaching conditions
will be complied with. When the grant relates to an expense
item, it is recognised as income over the period necessary
to match the grant on a systematic basis to the costs that it
is intended to compensate. Where the grant relates to an
asset, it is set up as deferred income. Where the Company
receives non-monetary grants, the asset and that grant are
recorded at nominal amounts and are released to the profit
or loss over the expected useful life of the relevant asset by
equal annual installments.
Kahawatte Plantations PLC | Annual Report 2022 35
(Contd...)
3.6 a) Statement of Profit or Loss & Other Comprehensive
Income
3.6.1 Revenue and Other Income Recognition
The information about the nature and timing of the
satisfaction of performance obligations in contracts with
customers, including significant payment terms, and the
related revenue recognition policies are described below.
Revenue principally consists of tea and rubber auction
sales. The Company considers sales as one performance
obligation and recognizes revenue when it transfers
control of goods to the customer via the auction. Revenue
is recognized at invoice value net of brokerage, sales
expenses and other levies related to revenue.
Gains and losses on disposal of Property Plant and
Equipment are determined by comparing the net sales
proceed with the carrying amount of Property Plant and
Equipment and are recognized within other income in
the income statement Other income is recognized on an
accrual basis.
3.6.2 Expenditure Recognition
and in maintaining the Property, Plant and Equipment in
state of efficiency has been charged to income statement
in arriving at the profit/(loss) for the year.
For the purpose of presentation of Income Statement,
the Directors are of the opinion that function of expenses
method presents fairly the elements of the enterprise’s
performance and, hence such presentation method is
adopted. Interest expenditure on borrowings is recognised
on an accrual basis.
3.6.3 Income Tax Expense
Income tax expense comprises current tax and deferred
tax. Income tax expense is recognized in profit or loss
except to the extent that it relates to items recognized
directly in equity, in which case it is recognized in equity.
The Company has determined that interest and penalties
related to income taxes, including uncertain tax treatments,
do not meet the definition of income taxes, and therefore
accounted for them under LKAS 37 Provisions, Contingent
Liabilities and Contingent Assets.
3.6.3.1 Current Tax
Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or
substantively enacted at the reporting date, and any
adjustment to tax payable in respect of previous years. The
elements of income and expenditure as reported in the
financial statements and computed in accordance with the
provisions of the Inland Revenue Act No. 24 of 2017 and as
amended subsequently by Inland Revenue (Amendment)
Act No 10 of 2021.
3.6.3.2 Deferred Tax
Deferred tax is provided, using the liability method, on
temporary differences at the reporting date between
the tax bases of assets and liabilities, and their carrying
amounts for financial reporting purposes.
 36 Kahawatte Plantations PLC | Annual Report 2022
NOTES TO THE FINANCIAL STATEMENTS
Temporary differences in relation to a right-of- use
assets and lease liability are regarded as a net package
(Right of Use of the assets) for the purpose of recognising
deferred tax.
Deferred tax assets and liabilities are recognised for all
temporary differences. Deferred tax assets are
recognised for all deductible temporary differences, carry-
forward of unused tax credits and unused tax losses, to the
extent that it is probable that taxable profit will be available
against which the deductible temporary differences, and
the carry-forward of unused tax credits and unused tax
losses can be utilized.
The carrying amount of deferred tax assets is reviewed
at each reporting date and reduced to the extent that it
is no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be
utilised. Unrecognised deferred tax assets are reassessed at
each balance sheet date and are recognised to the extent
that it has become probable that future taxable profit will
allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at tax rates
that are expected to apply to the year when the asset is
realised or liability is settled, based on the tax rates that
have been enacted or substantively enacted as at the
reporting date.
Deferred income tax relating to items recognised directly in
equity is recognised in equity and not in the profit or loss.
Deferred tax assets and deferred tax liabilities are offset, if
a legally enforceable right exists to set off current tax
assets against tax liabilities and the deferred taxes to the
same taxable entity and the same taxation authority.
3.6.3.3 Tax exposures
In determining the amount of current and deferred tax, the
Company considers the impact of uncertain tax positions
and whether additional taxes and interest may be due. This
assessment relies on estimates and assumptions and may
involve a series of judgments about future events.
New information may become available that causes the
Company to change its judgment regarding the adequacy
of existing tax liabilities; such changes to tax liabilities
will impact the tax expense in the period that such a
determination is made.
3.7 Cash and Cash Equivalents
Cash and Cash Equivalents are defined as cash in hand,
demand deposits readily convertible to known amounts of
cash and subject to insignificant risk of changes in value
net of bank overdrafts that are repayable on demand for
the purpose of the Statement of Cash Flows.
3.8 Stated Capital
The Stated Capital of the Company is Rs. 1,698,952,641/-
divided into No. 99,406,691 Ordinary Shares and One (01)
Golden Share
(Contd...)
3.9 Revaluation Reserve
Revaluation Reserve of the company consist the revaluation
gain recognized from fair valuation of Plant and Machinery
owned by the company.
3.10 Statement of CashFlows
The Statement of Cash Flows has been prepared using the
“indirect method”. Interest paid is classified as operating
cash flows, interest and dividends received and government
grants received are classified as investing cash flows while
dividends paid is classified as financing cash flows for the
purpose of presenting the Statement of Cash Flows.
3.11 Related Party Transactions
Disclosure has been made in respect of the transaction
in which one party has the ability to control or exercise
significant influence over the financial and operating
policies/ decisions of the other, irrespective of whether a
price is being charged. A detailed Related Party Transaction
analysis in presented in Note 29.
3.12 Segmental Reporting
A Segment is a distinguishable component of the Company
that is engaged in providing services, which is subject to
different risks and rewards.
The Company’s core business is manufacturing and sale
of Tea and this line of business accounts for the entire
operation of the company. The Company’s business is
located in different geographical locations where the risks
and rewards related to each segment could be identified.
Revenue and expenses directly attributable to each
segment are allocated intact to the respective segments.
Revenue and expenses not directly attributable to a
segment are allocated on the basis of their resource
utilisation wherever possible.
Assets and Liabilities directly attributable to each segment
are allocated intact to the respective segments. Assets and
Liabilities, which are not directly attributable to a segment,
are allocated on a reasonable basis whenever possible.
3.13 Commitment and Contingencies
Contingencies are possible assets or obligations that arise
from a past event and would be confirmed only on the
occurrence or non-occurrence of one or more uncertain
future events, which are beyond the company’s control.
Contingent Liabilities are disclosed in Note 34 to the
Financial Statements. Commitments are disclosed in Note
33 to the Financial Statements.
3.14 Events occurring after the reporting period
Events after the reporting period are those events
favorable and unfavorable occurring between the end
of the reporting period and the date when the Financial
Statements are authorised for issue. The materiality of the
events occurring after the reporting period is considered
and appropriate adjustments or disclosures are made in
the Financial Statements, where necessary.
3.15 Foreign Currency Translations
Transactions in foreign currencies are translated to Sri
Lankan Rupees at the exchange rates prevailing at the
date of transactions.
 Kahawatte Plantations PLC | Annual Report 2022 37

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

Monetary assets and liabilities denominated in foreign
currencies at the reporting date are translated to Sri Lankan
Rupees at the exchange rates at that date. The foreign
currency gain or loss on monetary items is the difference
between the amortized cost in Sri Lankan Rupees at the
beginning of the period, adjusted for effective interest and
payments during the period, and the amortized cost in
foreign currency translated
at the exchange rate at the end of the reporting period.
LKAS 1 and the deferral of the effective date of the 2020
amendments to no earlier than 01st January 2024. Due
to these ongoing developments, the Company is unable
to determine the impact of these amendments on the
financial statements in the period of initial application. The
Company is closely monitoring the developments.
4.3 Disclosure of Accounting Policies (Amendments to
LKAS 1). The amendment applies to annual reporting
period beginning on or after 1 January 2023

Non-monetary assets and liabilities which are stated at
historical cost denominated in foreign currencies are
translated to Sri Lankan Rupees at the exchange rate at
the dates of the transactions. Non-monetary assets and
liabilities that are stated at fair value, denominated in
foreign currencies are translated to Sri Lankan Rupees at
the exchange rate that the fair value was determined.
Exchange differences arising on the settlement of
monetary items, and on the translation of monetary items,
are included in profit or loss for the period
Exchange differences arising on the translation of non-
monetary items carried at fair value are included in profit
or loss for the period except for the differences which are
recognized in other comprehensive income.
4. NEW STANDARDS AND CHANGES TO ACCOUNTING
STANDARDS NOT EFFECTIVE AS AT THE REPORTING The amendments introduce a new definition for accounting
DATE
A number of new standards are effective for annual periods
beginning on or after 01st April 2023 and earlier application
is permitted; however, the Company has not early adopted
the new or amended standards in preparing these financial
statements.
4.1 The Deferred Tax related to Assets and Liabilities
arising from a single Transaction (Amendments to
LKAS 12)
The key amendments include,
- requiring companies to disclose their material
accounting policies rather than their significant
accounting policies.
- clarifying that accounting policies related to immaterial
transactions, other events or conditions are themselves
immaterial and as such need not be disclosed; and
- clarifying that not all accounting policies that relate
to material transactions, other events or conditions
are themselves material to a Company’s financial
statements. The Company does not anticipate this
amended to have a significant impact.
4.4 Definition of Accounting Estimates (Amendments to
LKAS 8)
estimates clarifying that they are monetary amounts in
the financial statements that are subject to measurement
uncertainty. Additionally, the amendments also clarify the
relationship between accounting policies and accounting
estimates by specifying that an entity develops an
accounting estimate to achieve the objective set out by
an accounting policy. The amendment applies to annual
reporting periods beginning on or after 1st January 2023.

The amendments narrow the scope of the initial recognition

exemption to exclude transactions that give rise to equal
and offsetting temporary differences – e.g. leases and
decommissioning liabilities. The amendments apply for
annual reporting periods beginning on or after 1st January
2023. For leases and decommissioning liabilities, the
associated deferred tax asset and liabilities will need to be
recognized from the beginning of the earliest comparative
period presented, with any cumulative effect recognized as
an adjustment to retained earnings or other components
of equity at that date. For all other transactions, the
amendments apply to transactions that occur after the
beginning of the earliest period presented.

4.2 Classification of Liabilities as Current or Non-Current

(Amendments to LKAS 1)

The amendments, as issued on 2020, aim to clarify the

requirements on determining whether a liability is current
or non-current, and apply for annual reporting periods
beginning on or after 01st January 2023. However, the
IASB has subsequently proposed further amendments to
 38 Kahawatte Plantations PLC | Annual Report 2022

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

For the year ended 31 December

2022 2021
5. REVENUE Rs.’000 Rs.’000
5.1 Revenue Streams
Revenue from Contracts with customers
Tea 5,462,198 3,487,275
Rubber 647,300 591,707
Other Revenue (5.1a) 151,818 188,234
Total Revenue 6,261,316 4,267,216

5.1a Revenue classified as 'other revenue' above, mainly comprise revenue generated from Cinnamon sales and Timber Tree sales.
5. 2022 2021
Timing of Revenue Recognition Rs.’000 Rs.’000

Products transferred at a point in time 6,261,316 4,267,216

5.2 Performance obligations

Information about the Company’s performance obligations is summarized as follows:
Type of products/services Nature and timing of satisfaction of performance
obligation
Tea and Rubber The Company is selling made tea to customers
through brokers at Colombo Tea Auction.
Other Revenue The Company is selling, Cinnamon sales & Timber
Tree sales. to the customers at the plantations.
Revenue recognition under SLFRS 15
Revenue from tea and rubber is recognised
at the time of confirmation of sale at the
auction.
Revenue from sale of other crops is
recognised at the point in time when the
control of the goods has been transferred
to the customer, generally at the Estates.

5.3 Segmental Information

The company has the following three strategic divisions, which are its reportable segments. These divisions offer different products
and services, and are managed separately because they require different technology and marketing strategies. Other operations
include Cultivation and sale of diversified crops such as sale of timber trees and cinnamon etc. None of these other operations met the
quantitative threshold for reportable segments in 2022 or 2021

Principal Crops Tea Rubber Others Total

2022 2021 2022 2021 2022 2021 2022 2021
(a) Segment Revenue Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000
Revenue 5,462,198 3,487,275 647,300 591,707 151,818 188,234 6,261,316 4,267,216
Cost of Sales (4,678,693) (3,589,464) (615,096) (515,001) (106,819) (106,448) (5,400,608) (4,210,913)
Segment Results 783,505 (102,189) 32,204 76,706 44,999 81,786 860,708 56,303

Unallocated
Other Income 139,543 75,399
Administrative Expenses (178,930) (134,652)
Gain on fair valuation of biological assets 136,913 92,290
Profit from Operating Activities 958,234 89,340
Net Finance Cost (397,623) (183,806)
Profit/ (Loss) from Ordinary Activities before Income Tax Expenses 560,611 (94,466)
Income Tax Expense (248,573) (11,732)
Profit/ (Loss) for the Year 312,038 (106,198)

Actuarial Gain on Retirement Benefit Obligation 27,784 119,134

Deferred Tax Charge on Retirement Benefit Obligation (8,336) (12,509)
Surplus on Revaluation of Plant & Machinery 174,525 -
Deferred Tax Charge on Revaluation of Plant & Machinery (52,358) -
Reversal/ (Charge) from Deferred Tax Effective Rate Change on Gross Revaluation Reserve (60,848) 10,921
Other Comprehensive Income for the Year, Net of tax 80,767 117,546
Total Comprehensive Income for the Year 392,805 11,348
 Kahawatte Plantations PLC | Annual Report 2022 39

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

5.3 Segmental Information (Contd...)

Tea Rubber Others Total

2022 2021 2022 2021 2022 2021 2022 2021
(b) Segmental Assets Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000
Non Current Assets 2,441,194 2,157,511 993,515 986,776 1,359,567 1,338,824 4,794,276 4,483,111
Current Assets 754,295 380,484 54,911 64,177 7,174 7,809 816,380 452,470
3,195,489 2,537,995 1,048,426 1,050,953 1,366,741 1,346,633 5,610,656 4,935,581

Unallocated
Non Current Assets 16,996 29,603
Current Assets 138,122 119,491
Total Assets 5,765,774 5,084,675

Capital Expenditure
- Allocated 213,591 161,585 21,355 17,280 74,981 36,975 309,927 215,840
- Unallocated - - - - - - 1,531 1,012
311,458 216,852

Depreciation / Amortization
- Allocated 135,539 133,301 65,042 61,307 12,089 12,435 212,670 207,043
- Unallocated 19,347 13,748
232,017 220,791

(c) Segmental Liabilities

Non Current Liabilities
- Allocated 647,321 658,284 277,424 282,122 - - 924,745 940,406
- Unallocated - - - - - - 891,425 716,844
1,816,170 1,657,250

Current Liabilities
- Allocated 513,578 429,759 182,810 174,383 - - 696,388 604,142
- Unallocated - - - - - - 1,714,302 1,677,174
2,410,690 2,281,316

Total Liabilities 1,160,899 1,088,043 460,234 456,505 - - 4,226,860 3,938,566

The Operations under three segments are as follows,

Reportable Segments Operations

Tea Cultivation, processing and sale of tea leaves and made tea
Rubber Cultivation, processing, sale of rubber.
Other Cultivation and sale of diversified crops such as sale of timber trees and cinnamon

There are varying levels of integration between each segment.

 40 Kahawatte Plantations PLC | Annual Report 2022

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

For the year ended 31 December

6. OTHER INCOME 2022 2021

Rs.’000 Rs.’000

Amortization of Capital Grants 15,338 15,323

Rent Income 7,064 7,533
Annual Income from Mini Hydro Power Project 15,356 13,984
Deferred Income from Mini Hydro Power Project 879 440
Sundry Income 7,204 8,681
Sale of Rubber Trees 93,702 26,944
Profit from disposal of Property Plant and Equipment - 2,494
139,543 75,399
7. PROFIT FROM OPERATING ACTIVITIES
Is stated after charging all expenses including the following, 2022 2021
Rs.’000 Rs.’000

Directors' Emoluments 1,260 900

Auditors' Remuneration - Audit fees 3,585 3,050
- Non - Audit fees & expenses 362 228
Depreciation/Amortization
- Leasehold rights to Bare Land 6,549 6,227
- Immovable leased assets 8,794 8,793
- Property, Plant & Equipment 101,211 96,846
- Mature Plantations 115,463 108,925
Personnel cost includes,
- Defined benefit plan cost - Retiring Gratuity
Amount Recognized in Statement of Profit ot Loss
- Current Service Cost 47,332 47,468
- Interest Cost 59,624 48,331
Amount Recognized in Other Comprehensive Income
- Actuarial Gain (27,784) (119,134)
- Defined contribution plan cost - EPF, ETF,CPPS & ESPS 151,679 155,865
-Workers Profit Share 15,602 -
ESC Write off 3,466 12,955
Inventory Impairment Provision/ (Reversal) 649 (438)
Inventory Written off (Nursery) 5,740 -
Other receivable written off 303 699
Immature Plantation write offs 84,996 1,398

8. FINANCE INCOME 2022 2021

Rs.’000 Rs.’000

Interest Income 139 550

139 550

9. FINANCE COST 2022 2021

Rs.’000 Rs.’000

Interest on Government Finance Lease 18,813 17,922

Interest on Lease - Central Finance 5,141 -
Interest on Bank Overdrafts 112,911 54,216
Interest on Term Loans 260,897 109,804
397,762 181,942
Less: Borrowing costs capitalized - (1,792)
Exchange Loss - 4,206
397,762 184,356

Net Finance Cost 397,623 183,806

 Kahawatte Plantations PLC | Annual Report 2022 41

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

For the year ended 31 December

10. TAXATION 2022 2021

Rs.’000 Rs.’000

Current tax expenses (Note 10.1) - 6,995

Previous year tax expenses (Under/ (Over) Provision) (142) 6,325
Deferred tax expense/(Reversal) (Note 10.3) 248,715 (1,588)
248,573 11,732

10.1 Current Tax Expenses 2022 2021

Rs.’000 Rs.’000

Accounting Profit/ (Loss) before Taxation 560,611 (94,466)

Aggregate Disallowable expenses 473,291 356,726
Aggregate Allowable Expenses (460,330) (254,661)
573,572 7,599

Tax Exempt Income / (loss) (109,241) (288,080)

Taxable Income / (loss) 649,231 266,532
Other Sources of Taxable Income 33,444 29,147
Total Statutory Income 573,434 7,599
- Add back Tax Exempt Loss 109,241 288,080
Losses set off during the year (682,675) (266,532)
Taxable Income from Other Income - 29,147

Income tax @ 14%- 1st Half of 2022 & 30%- 2nd Half of 2022 (2021-14%) - -
Income tax @ 24%- 1st Halfof 2022 & 30%- 2nd Half of 2022 (2021-24%) - 6,995
- 6,995

Applicable Income Tax Rate

Based on the Inland Revenue Amendment Act No. 10 of 2021, the Company is exempted to pay income tax on profit from its business
of “Agro Farming” for a period of 5 years with effect from 1st April 2019. This exemption has been applied in calculating the taxable
income.

Provision for income tax on profits from the business of “Agro processing” for the year ended 31st December 2022 has been calculated
using the tax rate of 14%% and other income at 24% till 30th June 2022 and with effective from 1st July 2022 rates were 30% for both
income sources. In accordance with the provisions of the Inland Revenue Act (Ammendment Act No 10 of 2021) (2021: Profits from
agriculture at 14% and other income at 24%).

10.2 Accumulated Tax Losses 2022 2021

Rs.’000 Rs.’000

Tax losses brought forward (2,755,442) (3,361,941)

Adjustment in respect of previous years (13,118) 339,967
Losses set off during the year 682,675 266,532
Tax losses carried forward (2,085,885) (2,755,442)

10.3 Deferred Tax Expense 2022 2021

Rs.’000 Rs.’000

Deferred tax charge/(reversal) to income statement (Note 23.1) 248,715 (1,588)

Deferred tax charge to Other Comprehensive Income (Note 10.3.1 & Note 23.2) 121,542 1,588
370,257 -
 42 Kahawatte Plantations PLC | Annual Report 2022

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

For the year ended 31 December

10.3.1 Deferred tax charge/(reversal) to Other Comprehensive Income (Note 10.3.1 & Note 23)
2022 2021
For the year ended (Rs.’000)
Before Tax (expense)/ Net of Tax Before Tax Tax (expense)/ Net of Tax
Tax benefit benefit
Deferred Tax Charge Retirement Benefit 27,784 (8,336) 19,448 119,134 (12,509) 106,625
Obligation
Deferred Tax Charge on Revaluation of 174,525 (52,358) 122,167 - - -
Plant & Machinery
(Charge) / Reversal from Deferred Tax Effective - (60,848) (60,848) - 10,921 10,921
Rate Change on Gross Revaluation Reserve
Total Deferred tax charge to Other 202,309 (121,542) 80,767 119,134 (1,588) 117,546
Comprehensive Income

11. EARNING/ (LOSS) PER SHARE

11.1 Basic earning/ (loss) Per Share
The computation of the Basic earning/ (Loss) per share is based on profit/ (Loss) attributable to ordinary shareholders for the year
divided by the weighted average number of ordinary shares outstanding during the year and calculated as follows;
2022 2021
Amount used as the Numerator
Profit / (Loss) after income tax expense attributable to Ordinary Shareholders (Rs. 000) 312,038 (106,198)

Amount used as the Denominator

Weighted average number of Ordinary Shares outstanding during the year ('000) - Note 11.2 99,407 99,407
Earning/ (Loss) per share (Rs) 3.14 (1.07)

11.2 Issued ordinary shares at as at beginning of the year ('000) 99,407 99,407
Shares issued during the year - -
Weighted-average number of ordinary shares as at 31st December ('000) 99,407 99,407

11.3 Diluted Earning/(Loss) Per Share

The calculation of diluted Profit/(loss) per share is based on Profit/(loss) attributable to ordinary shareholders and weighted
average number of ordinary shares outstanding after adjusting for the effect of all dilutive potential ordinary shares.
There were no potentially dilutive shares outstanding at any time during the year/previous year.

12. LEASEHOLD RIGHT TO BARE LAND OF JEDB/SLSPC ESTATES

a) The leasehold right to the land on all seventeen estates have been taken in to the books of the Company as at 15 June 1992 immediately
after formation of the Company, in terms of the ruling obtained from the Urgent Issues Task Force (UITF) of the Institute of Chartered
Accountants of Sri Lanka. For this purpose, the Board decided at its meeting held on 8 March 1995 that these bare lands would be revalued,
at the value established for these lands, by the valuation specialist Mr. D. R. Wickramasinghe, just prior to the formation of the Company.
The value taken into 15 June 1992, Balance Sheet and the written down values are given in note 12.(c) below;

b) Lease agreement have been executed for seventeen estates out of the seventeen estates handed over to company by JEDB/SLSPC as at
31 December 2022.

c) At Carried Value Life of the 15/06/1992 2022 2021

Asset Rs’000 Rs.’000 Rs.’000

Leasehold Right to Land of JEDB / SLSPC Estates 53 years 322,427 321,390 316,962
Remeasurement of Leasehold Right as at 1st July 10,579 4,428
331,969 321,390
Accumulated Amortization
As at 1 January 172,889 166,662
Amortization for the Year 6,549 6,227
As at 31 December 179,438 172,889
Carrying amount 152,531 148,501
The value of the Right of Use Asset has been considered as the deemed cost as at the transition date of SLFRS 16.
 Kahawatte Plantations PLC | Annual Report 2022 43

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

For the year ended 31 December

13 IMMOVABLE LEASED ASSETS (OTHER THAN BARE LAND)

Notes 2022 2021
Rs.’000 Rs.’000
Immovable leased bearer biological assets 13.1 27,003 35,471
Immovable leased assets (Other than Lease hold right to bare 13.2 401 727
Land & biological Assets)
27,404 36,198
13.1 IMMOVABLE LEASED BEARER BIOLOGICAL ASSETS
As more fully explained in Note 12 although all JEDB/SLSPC estate leases have not been executed to date in terms of the ruling of the
UITF all immovable assets in these estates under leases have been taken into the books of the Company retroactive to 15 June 1992.
For this purpose the Board decided at its meeting on 08th March 1995 that these assets would be taken into the books at their book
values as they appear in the books of the JEDB / SLSPC, as the case may be, on the day immediately preceding the date of formation
of the Company. These assets have been taken into the 15 June 1992, Balance Sheet and the written down values are as follows;

Mature Plantations
Tea Rubber Minor Crop 2022 2021
Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Capitalized Value 22 June 1992 254,049 79,305 4,094 337,448 337,448

Amortization
As at 1 January 218,578 79,305 4,094 301,977 293,562
Amortization for the year 8,468 - - 8,468 8,415
As at 31 December 227,046 79,305 4,094 310,445 301,977
Carrying amount 27,003 - - 27,003 35,471

Investments in Immature Plantations at the time of handing over to the company as at 15 June 1992 by way of estate leases were
shown under Immature Plantations. However, since then all such investments in Immature Plantations have been transferred to
Mature Plantations. The carrying value of the bearer biological assets leased from JEDB/SLSPC is recognised at cost less amortization.

13.2 IMMOVABLE LEASED ASSETS (OTHER THAN LEASEHOLD RIGHT TO BARE LAND & BIOLOGICAL ASSETS)

Improvements Buildings Water Supply 2022 2021

to land Rs’000 Rs’000 Rs’000 Rs’000
Rs’000

Capitalized Value 22 June 1992 6,448 24,459 5,364 36,271 36,271

Amortization
As at 1 January 6,285 24,459 4,800 35,544 35,166
Amortization for the year 163 - 163 326 378
As at 31 December 6,448 24,459 4,963 35,870 35,544
Carrying amount - - 401 401 727

Since, there is no future lease liabilities for these assets, the carrying value as at 1st January 2019 has been considered as the
remeasured value in accordance with SLFRS 16
 44 Kahawatte Plantations PLC | Annual Report 2022

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

14 PROPERTY, PLANT & EQUIPMENT

Notes 2022 2021
Rs.’000 Rs.’000
Free Hold Assets 14.1 1,235,885 1,011,135
Lease Hold Assets 14.2 69,225 -
1,305,110 1,011,135
14.1 Free Hold Assets
Cost Useful As at As at As at
Life of 01.01.2022 Additions Revaluation Revaluation Transfers Disposal Write offs 31/12/2022 31/12/2021
the Asset Rs’000 Rs’000 Rs’000 Reversal of Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
depreciation
Rs’000

Improvements to 10-40 years 532,243 1,052 - - 26,844 - - 560,139 532,243

Land & Buildings
Plant & Machinery 13 1/3 - 20 658,898 3,892 174,525 (185,716) 42,577 - - 694,176 658,898
years
Motor Vehicles 5 years 129,336 5,021 - - - - - 134,357 129,336
Equipment 8 years 186,043 16,822 - - - - - 202,865 186,043
Furniture & 10 years 14,370 1,469 - - - - - 15,839 14,370
Fittings
Water / Link Roads 20 years 112,344 893 - - - - - 113,237 112,344
Capital Work-in- 23,416 119,120 - - (69,421) - (1,035) 72,080 23,416
Progress
1,656,650 217,690 174,525 (185,716) - - (1,035) 1,792,693 1,656,650

Accumulated Depreciation Written Down Value

As at Charge Revaluation As at As at As at
01/01/2022 for the year Reversal of 31/12/2022 31/12/2022 31/12/2021
Rs’000 Rs’000 depreciation Rs’000 Rs’000 Rs’000
Rs’000
Improvements to 189,968 17,875 - 207,843 352,296 342,275
Land & Buildings
Plant & Machinery 124,444 61,272 (185,716) - 694,176 534,454
Motor Vehicles 111,365 4,519 - 115,884 18,473 17,971
Equipment 148,693 8,698 - 157,391 45,474 37,350
Furniture & Fittings 11,223 620 - 11,843 3,996 3,147

Water / Link Roads 59,822 4,025 - 63,847 49,390 52,522

Capital Work-in- - - - - 72,080 23,416
Progress
645,515 97,009 (185,716) 556,808 1,235,885 1,011,135

14.2 Lease Hold Assets

Cost Useful As at As at As at
Life of 01/01/2022 Additions Transfers Disposal Write offs 31/12/2022 31/12/2021
the Asset Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Motor Vehicles 5 years - 73,427 73,427 -

- 73,427 - - - 73,427 -
Accumulated Depreciation Written Down Value
As at Charge Revaluation As at As at As at
01/01/2022 for the year Reversal of 31/12/2022 31/12/2022 31/12/2021
Rs'000 Rs'000 depreciation Rs'000 Rs'000 Rs'000
Rs'000

Motor Vehicles - 4,202 - 4,202 69,225 -

- 4,202 - 4,202 69,225 -
 Kahawatte Plantations PLC | Annual Report 2022 45

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

a) The assets shown above are those movable assets vested in the company by way of Gazette notification on the date of
formation of the company (15 June 1992) and all investments in tangible assets of the Company since its formation. The assets
taken over by way of estate leases are set out in Notes 12 and 13 to the Financial Statements.

b) No borrowing Cost has been capitalized in respect of Property, Plant & Equipment for the year ended 31 December 2022.

c) The Initial cost of the fully depreciated items of Property, Plant and Equipment which are still in use as at 31st December 2022
are as follows,

Assets 2022 2021

(Rs’000) (Rs’000)

Improvements to Land & Buildings 590 590

Plant & Machinery 14,230 10,490
Furniture & Fittings 8,140 7,653
Tools & Equipment 130,468 120,457
Motor Vehicles 109,280 107,930
Sanitation/Water Supply 12,059 11,714
274,767 258,834

d) Capital Work-in-Progress include the Work-in-Progress pertaining to Improvements to Land & Building and Plant and Machinery

e) There are no restrictions that existed on the title of the PPE of the Company as at the reporting date

f ) During the financial year, the Company acquired PPE to the aggregate value of Rs. 164.97 Mn (2021- Rs. 155.68 Mn) by means
of cash.

g) Plant & Machinery owned by company were revalued by chartered valuation surveyor Mr. Chandrasena (FIV SL, MRICS UK) as at
31st December 2022. Details of the revalued Plant & Machinery are given below.

i. Fair value hierarchy

The fair value measurement for all of the plant and machinery have been categorized as a Level 3 fair value based on the
inputs to the valuation technique used.
 46 Kahawatte Plantations PLC | Annual Report 2022

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

14 PROPERTY, PLANT & EQUIPMENT (Continued)

ii. Valuation technique and significant unobservable inputs

The following table shows the valuation technique used in measuring the revalued amounts of plant and machinery, as well
as the significant unobservable inputs used.

Valuation Technique Significant Unobservable Inputs Inter Relationship Between Significant

Unobservable Inputs and Fair Value
Measurement
Comparable method: The cost of replacing an existing asset
with a substantially identical equivalent, The Estimated fair value would increase
after taking into consideration, the (decrease) if:
depreciation due to use, age and Open market values were higher
obsolescence through market changes (lower);
(Rs. 5,000 - Rs. 30,000,000)

h) If property, plant and equipment were stated in the historical cost basis (without revaluing), their net book amounts would be as
follows ;

As at 31st December 2022 2021

Rs.’000 Rs.’000
Cost 822,538 776,069
(-) Accumulated depreciation (522,155) (485,442)
Carrying Value 300,383 290,627

15 BIOLOGICAL ASSETS Notes 2022 2021

Rs.’000 Rs.’000
Consumable Biological Assets - Managed Trees 15.1 1,158,092 1,032,992
Bearer Biological Assets 15.2 2,168,134 2,283,888
3,326,226 3,316,880

15.1 Consumable Biological Assets - Managed Trees 2022 2021

Rs.’000 Rs.’000
a) Cost of Young Plants
At the beginning of the year 22,172 22,153
Additions 5,056 19
Transfers to Standing Timber (22,153) -
At the end of the year 5,075 22,172

Standing Timber
At the beginning of the year 1,010,820 929,871
Transfers from Cost of Young Plants 22,153 -
Change in fair value less cost to sell due to Price and Physical Changes 133,601 92,191
Decrease due to Harvest & Fallen trees (13,556) (11,242)
At the end of the year 1,153,018 1,010,820

Total Consumable Biological Assets 1,158,092 1,032,992

b) Measurement of fair values

i. Fair Value hierarchy
The fair value measurement for standing timber is Rs. 1,153 Mn (2021 : Rs 1,011 Mn) and it has been categorized as level 3 fair
values based on the inputs to the valuation techniques used.
 Kahawatte Plantations PLC | Annual Report 2022 47

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

15 BIOLOGICAL ASSETS (Continued)

ii. Level 3 fair values

The following table shows the valuation techniques used in measuring fair values, as well as significant unobservable in puts
used.

Type Valuation Technique used Significant unabservable Inter relationship between

inputs key unobservable inputs
and fair value measurement
Standing Timber Discounted Cash flows; The Estimated future timber The estimated fair value
(Age Over 4 years) valuation model considers the market price per Cubic feet would increase (decrease) if;
present value of net cashflows (Rs.100 - Rs.1000)
expected to be generated by - the estimated timber prices
the plantation. The cash flow -’Risk Adjusted Discount Rate per cubic feet were higher/
projections include specific - 20.5% (2021 -14.8%) (lower)
estimates upto 20 years.
The expected net cashflows - the risk adjusted discount
are discounted using a risk factor were lower / (higher)
adjusted discount rate.
Young Plants Cost techniques; The cost - Aproximate cost of The value would increase
(Age less than 5 years) techniques considers the cultivation and preparation (decrease) if;
cost of plantation, taking per hectare is Rs.617,450
in to account the cost of - The cost of infrastructure,
infrastructure, cultivation - Aproximate cost of buying cultivation and preparation
and preparation, buying and and planting young plants and buying and planting
planting young trees. per hectare is Rs 84,050 trees were higher/ (lower)

The future cash flows are determined by reference to current timber prices without considering the future increase of timber price.
Trees have been valued as per the current timber prices per cubic feet net of expenditure based on the market prices timber trees.

The valuations, as presented in the external valuation models based on net present values, take into account the long-term
exploitation of the timber plantations. Because of the inherent uncertainty associated with the valuation at fair value of the
biological assets due to the volatility of the variables, their carrying value may differ from their realizable value. The Management
retains their view that commodity markets are inherently volatile and that long term price projections are highly unpredictable.
Hence, the sensitivity analysis regarding selling price and discount rate variations as included in this note allows every investor to
reasonably challenge the financial impact of the assumptions used in the LKAS 41 against his own assumptions.

Managed Trees owned by Company were valued at fair value by chartered valuation surveyor Mr. Chandrasena (FIV SL, MRICS UK)
as at 31st December 2022.

c) Risk management strategy related to agricultural activities

The Company is exposed to the following risks relating to its timber planting.

i. Regulatory and environmental risks

The Company is subject to laws and regulations in the country. The Company has established environmental policies and
procedures aimed at compliance with local environmental and other laws.

ii. Supply and demand risk

The Company is exposed to risk arising from fluctuations in price and sales volumes of timber. The Company manages this risk
by aligning its harvest volume to market supply and demand. Management performs regular industry trend analysis for
projected harvest volumes and pricing.

iii. Climate and other risks

The Company’s timber plantations are exposed to the risk of damage from climate changes, diseases, forest fires and other
natural forces. The Company has extensive processes in place aimed at monitoring and mitigating those risks, including
regular forest health inspections and industry pest and disease surveys.
 48 Kahawatte Plantations PLC | Annual Report 2022

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

15 BIOLOGICAL ASSETS (CONTINUED)

a) Sensitivity Analysis

i. Sensitivity variation on sales price

Values as appearing in the statement of financial position are sensitive to the price changes with regard to average sales
prices applied.Simulations made for timber show that an increase or decrease by 10% of the estimated future selling price has
the following effect on the net present value of biological assets measured as fair value.

-10% 0% +10%
Rs’000 Rs’000 Rs’000
As at 31 December 2022 1,037,716 1,158,092 1,268,320
As at 31 December 2021 929,693 1,032,992 1,136,291

i. Sensitivity variation on Discount Rate

Values as appearing in the statement of financial position are sensitive to changes of the discount rate applied. Simulations
made for timber show that an increase or decrease by 1% of the estimated discount rate has the following effect on the net
present value of biological assets.

-1% 0% +1%
Rs’000 Rs’000 Rs’000
As at 31 December 2022 1,198,444 1,158,092 1,111,874
As at 31 December 2021 1,084,641 1,032,992 981,342

15.2 Bearer Biological Assets

As at As at As at
Cost Life of the 01/01/2022 Additions Write-offs Transfers 31/12/2022 31/12/2021
Asset Rs'000 Rs’000 Rs’000 Rs’000 Rs'000 Rs'000
Mature Plantations
-Tea 33 1/3 years 1,272,631 68,879 - - 1,341,510 1,272,631
- Rubber 20 years 1,189,925 94,484 - - 1,284,409 1,189,925
- Minor Crop 3-25 years 294,661 1,823 - - 296,484 294,661
Immature Plantations
- Tea 235,988 6,484 (81,606) (68,879) 91,987 235,988
- Rubber 161,703 20,339 - (94,484) 87,558 161,703
- Minor Crop 59,733 57,883 (3,390) (1,823) 112,403 59,733
3,214,641 249,892 (84,996) (165,186) 3,214,351 3,214,641

Written Down Value

Accumulated Depreciation As at Charge for the As at As at As at
01/01/2022 year 31/12/2022 31/12/2022 31/12/2021
Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Mature Plantations
- Tea 427,834 44,072 471,906 869,604 844,797
- Rubber 449,307 59,947 509,254 775,155 740,619
- Minor Crop 53,613 11,444 65,057 231,427 241,048
Immature Plantations
- Tea - - - 91,987 235,988
- Rubber - - - 87,558 161,703
- Minor Crop - - - 112,403 59,733
930,754 115,463 1,046,217 2,168,134 2,283,888
These are investments in plantations since the formation of the Company. The assets (including plantation assets) taken over by way of estate
leases are set out in Notes 12 and 13. Further, investment to immature plantation taken over by way of these leases are shown in the above
note. When such plantations came in to bearing, the additional investments since taking over to bring them to bearing was transferred
from immature to mature plantations under this note. A corresponding transfer was made from immature to mature plantations being the
investment undertaken by JEDB/SLSPC on the particular plantation prior to the formation of the company under Note 13.
 Kahawatte Plantations PLC | Annual Report 2022 49

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

The Company has performed an impairment assessment on immature biological assets and identified that some of immature
plantations are non-existing and / or uneconomical. Accordingly, the management has performed a calculation of write offs on
such immature fields based on the costs incurred after considering the recoverable amount of economical fields based on fair
value less cost to sell.

As a result, the Company has written off Rs. 84.9 Mn (2021- 1.4 Mn) as at 31st December 2022.
Minor crops include Cinnamon, Macadamia etc., carried at cost less accumulated depreciation & impairment.

According to option granted by the Institute of Chartered Accountants of Sri Lanka on valuation of bearer biological assets, the
company has measured these assets in accordance with LKAS 16 “Property Plant & Equipment”.

There was no Borrowing costs (2021 -1.8 Mn) incurred on term loan utilized to finance replanting expenditure of tea and rubber
have been capitalized. (The average rate of interest for capitalization is 7.3% for the year ended 31 December 2021).

15.3 Produce on bearer biological Asset 2022 2021

Rs.’000 Rs.’000
Balance as at 1 January 8,475 8,376
Change in fair value less cost to sell 3,312 99
Balanace as at 31 December 11,787 8,475

15.4 Change in fair value of Biological Assets 2022 2021

Rs.’000 Rs.’000
Change in fair value of consumable biological assets less cost to sell (Note 15.1(a)) 133,601 92,191
Change in fair value of produce on bearer biological assets less cost to sell (Note 15.3) 3,312 99
136,913 92,290

16 INVENTORIES 2022 2021

Rs.’000 Rs.’000
Input Materials and Consumables 1 38,777 78,589
(-) Provision for impairment of Input Materials and Consumables (Note 16.1 ) (4,826) (4,177)
Growing Crop Nurseries 1,331 5,675
Produce Crops (Tea, Rubber and Other) (Note 16.2 ) 646,446 336,232
781,728 416,319
5.74 Mn worth of Nursery balances have been written off during the financial year. (2021 - Nil)
16.1 Provision for impairment of Input Materials and Consumables
Balance at the beginning of the year 4 ,177 4,615
Provision/ (Reversal) during the year 649 (438)
Balance at the end of the year 4,826 4,177

16.2 Produce Crops (Tea, Rubber and Others)

Agriculture produce (Green Leaf etc.) 9,015 4,810
Finished goods (Tea, Rubber & Other) 637,431 331,422
646,446 336,232

17 TRADE & OTHER RECEIVABLES 2022 2021

Rs.’000 Rs.’000
Trade Receivables (Note 17.1) 22,866 27,676
Staff & Labor Receivables 44,448 39,578
Deposits and Prepayments 10,737 8,450
ESC Recoverable - 10,319
Other Debtors 37,124 27,488
115,175 113,511

17.1 Trade Receivables Includes Related Party Balances due from, Forbes and Walker Commodity Brokers (Private) Limited amounting
Rs.22.85 Mn (2021 - Rs.26.7 Mn) and Forbes and Walker Tea Brokers (Pvt) Limited amounting Rs. 0.02 Mn (2021 -Rs. 0.1 Million)

17.2 0.303 Mn worth of trade and other receivables have been written off during the financial year. (2021 - 0.699 Mn)
 50 Kahawatte Plantations PLC | Annual Report 2022

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

18 AMOUNT DUE FROM RELATED PARTIES 2022 2021

Rs.’000 Rs.’000
Ceylon Tea Farmers (Private) Limited 605 -
MJF Tea Gardens (Private) Limited 6,114 4,591
Patiagama Estate (Private) Limited 20 -
Dilmah Ceylon Tea Comapany PLC. 2,651 -
9,390 4,591

19 CASH & CASH EQUIVALENTS IN THE CASH FLOW STATEMENT 2022 2021
Rs.’000 Rs.’000
Favorable cash and cash equivalents Balances
Cash at Bank 31,042 29,009
Cash in Hand 5,381 56
36,423 29,065
Unfavorable cash and cash equivalent Balances
Bank Overdraft (Note 19.1) (805,656) (794,852)
Cash & Cash equivalents for the purpose of Cash Flow Statement (769,233) (765,787)

19.1 Bank Overdraft

Seylan Bank PLC - A/C No. 1 (Note 19.1 (a)) (82,347) (79,626)
Seylan Bank PLC- A/C No. 2 (Note 19.1 (a)) (29,999) (30,000)
Commercial bank - A/C (Note 19.1 (b)) (95,705) (87,948)
Union Bank PLC (2) (2)
Hongkong and Shanghai Banking Corporation Ltd. (Note 19.1 (C)) (597,603) (597,276)
(805,656) (794,852)

19.1 a) Bank - Seylan Bank PLC Colombo

Facility - 110 Mn.
Purpose - Finance the Working Capital requirements
Rate of Interest - AWLPR + 2.25%
Security - Primary Mortgage Bond over leased hold rights of Estate Land, Buildings & Fixed Assets at
- Imboolpitiya Estate for Rs 100 Mn.
- Katoboola Estate for Rs 70 Mn.
- Kadeinlena Estate for Rs 15 Mn.

19.1 b) Bank - Commercial Bank of Ceylon PLC

Facility - 100 Mn.
Purpose - Finance the Working Capital requirements
Rate of Interest - AWPLR+.75%
Security - Primary Mortgage Bond over leased hold rights of Property at Craighead Estate

19.1 c) Bank - Hongkong and Shanghai Banking Corporation Ltd

Facility - 600 Mn.
Purpose - Finance the Working Capital requirements
Rate of Interest - HSBC COF+2.5%
Security - Corporate guarantee by MJF Holdings Ltd. For Rs. 600 Mn
 Kahawatte Plantations PLC | Annual Report 2022 51

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

20. STATED CAPITAL As at As at

2022 2021
Number of Value of Number of Value of
Shares Shares Rs. Shares Shares Rs.
Fully Paid Ordinary Shares
At the beginning of the Year - Ordinary Shares 99,406,691 1,698,952,631 99,406,691 1,698,952,631
- Golden Share (Note (20.1)) 1 10 1 10
at the end of the year 99,406,692 1,698,952,641 99,406,692 1,698,952,641

The holders of ordinary share are entitled to receive dividends as declared from time to time and are entitled to one vote per
share at meetings of the Company

20.1 Golden Share

Golden Share has been allotted to the Secretary to the Treasury by capitalization of revaluation reserve on 1 August 1995. The
Articles of Association of the Company embodies the specific rights assigned to the Golden Shareholder on behalf of the State of
Democratic Socialist Republic of Sri Lanka. Following special right are vested with the Golden Shareholder;

a) The Company shall obtain the written consent of the Golden Shareholder prior to sub-leasing, ceding or assigning its rights in
part or all of the lands leased / to be leased to the Company by the JEDB/SLSPC.

b) The Golden Shareholder shall be entitled to call upon the Board of Directors meeting once in Three months to meet him or his
nominee to discuss matters of the Company of interest to the state of the Government.

c) The Golden Shareholder and or his nominee shall entitled to inspect the books of accounts of the Company after giving two
weeks written notice to the Company

d) The Company shall submit to the Golden Shareholder within 60 days of the end of each quarter, a quarterly report relating to
the performance of the Company during the said quarter in a pre-specified format agree to by the Golden Shareholder and
the company.

e) The Company shall submit to the Golden Shareholder, within 90 days of the end of each fiscal year, information related to the
Company in a pre-specified format agreed to by Golden Shareholder and the Company.
20.2 Shares Issued by way of Private Placement
The Company Issued 19,516,886 No. of Ordinary Voting Shares of the Company by way of a Private Placement on 31st December
2020 to MJF Teas (Private) Limited at a consideration of Rs. 41/- per Private Placement Share, by Capitalizing a total sum of Rs.
800,192,326 due and payable by the company to MJF Teas (Private) Limited including the payable amounts assigned by MJF
Exports (Private) Limited and Forbes Plantations (Private) Limited.

21 REVALUATION RESERVE (NET OF TAX)

2022 2021
Rs.’000 Rs.’000
Balance at the beginning of year 279,277 268,356
Revaluation gain during the year, net of taxes 122,167 -
Deferred Tax Charge/ (reversal) relating to gross revaluation at the begining of the year (60,848) 10,921
Balance at the end of year 340,596 279,277

Nature and purpose of Revaluation Reserve

The revaluation reserve relates to free hold Plant and Machinery which has been revalued by the Company. On revaluation an
asset, any increase in the carrying amount is recognized in revaluation reserve in equity through OCI or used to reverse a previous
loss on revaluation of the same asset, which was charged to the Income Statement. Any balance remaining in the revaluation
reserve in respect of an asset is transferred directly to retained earnings on retirement or disposal of the asset.
 52 Kahawatte Plantations PLC | Annual Report 2022

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

22 DEFERRED INCOME 2022 2021

Rs.’000 Rs.’000
Grants and Subsidies
As at 1 January 268,888 284,211
Grants received during the year 2,941 -
271,829 284,211
Amortization for the year (15,338) (15,323)
Carrying amount As at 31 December 256,491 268,888

Deferred Income
As at 1 January 19,560 -
Deferred Income Received during the year - 20,000
19,560 20,000
Amortization for the year (879) (440)
Carrying amount As at 31 December 18,681 19,560

Total Carrying amount As at 31 December 275,172 288,448

The above represents the following :

The funds received from the Plantation Human Development Trust (Plantation Housing and Social Welfare Trust) and Asian
Development Bank (ADB) are for the development of workers welfare facilities.
The amounts spent are capitalized under the relevant classification of Property, Plant & Equipment and the corresponding grant
component is reflected under deferred grants and subsidies and amortised over useful life span of the related asset.

23 DEFERRED TAXATION 2022 2021

Rs.’000 Rs.’000
Balance at the Beginning of the year 140,795 140,795
Originated/ (reversed) during the year- recognized in profit or loss (Note 23.1) 248,715 (1,588)
Originated during the year- recognized in other comprehensive income (Note 23.2) 121,542 1,588
Balance as at 31st December 511,052 140,795

23.1 Provision / (Reversal) during the year recognized in Profit or Loss

Effect in change in tax rates charged to Profit or Loss 231,885 -
Effect in change in tax base charged to Profit or Loss 16,830 (1,588)
248,715 (1,588)
23.2 Provision during the year recognized in Other Comprehensive Income
Effect in change in tax rates charged to Other Comprehensive Income 100,299 (10,921)
Effect in change in tax base charged to Other Comprehensive Income 21,243 12,509
121,542 1,588

2022 2021
Temporary Temporary
Differences Tax Effect Differences Tax Effect
Rs.’000 Rs.’000 Rs.’000 Rs.’000
On Property Plant and Equipment and Bearer Biological Assets 3,022,603 906,781 2,848,224 299,064
On Retirement gratuity (631,925) (189,578) (628,787) (66,023)
On Tax loss carried forward (1,634,005) (490,202) (1,836,691) (192,853)
On Biological Assets 938,337 281,501 943,959 99,116
On Leasehold Right To Bare land 8,495 2,549 14,198 1,491
1,703,505 511,052 1,340,903 140,795

Weighted Average tax rate used to calculate the deferred tax is 30% (2021-10.5%)
Deferred tax is provided using the liability method, providing for temporary differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes based on the provision of the Inland Revenue (Amendment) Act, No. 45 of 2022 certified
on 19 December, 2022. The deferred tax liability is calculated at the effective tax rate of 30% (2021-10.5%) for the company as at 31st December 2022.
“This change in the corporate tax rate from 10.5 % to 30 % has resulted in a provision of Rs. 332 Mn related to the re-measurement
of deferred tax liability of the company.”
 Kahawatte Plantations PLC | Annual Report 2022 53

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

23 DEFERRED TAXATION (Continued)

23.3 Deferred Tax Asset / Assessment of Recoverability
The Company recognized a Deferred Tax asset consequent to the changes in the Inland Revenue (Amendment) Act, No. 45 of 2022 certified
on 19 December, 2022. As per the said Act, which was effective from 1st October 2022, 100% of taxable income is allowed to be deducted
against the tax losses incurred. Accordingly the brought forward tax loss can be claimed against taxable income for a period of 6 years
commencing from the year of assessment 2018/19 and ending in year of assessment 2024/25.
The Management carefully analyzed the availability of the future taxable profits against which the unused tax losses can be utilised. In this
assessment the Company estimated the profitability using the internal budgets and plans in a conservative manner. In this assessment,
directors noted the composition of the carried forward tax loss as given in the note 10.2. Current estimated duration of recoverability of
deferred tax asset is 6 years until December 2024.
The unutilized tax losses of Rs. 1,634 Mn (2021 -Rs. 1,837 Mn) Mn out of total tax losses of Rs. 2,086 Mn (2021-Rs. 2,755) Mn have been
considered for the deferred tax based on the probable future taxable profits available. Hence a deferred tax asset of Rs. 136 Mn (2021- Rs.
96 Mn) has not been recognized in respect of unutilized tax losses of Rs. 451 Mn (2021- Rs. 918 Mn) as at 31st December 2022.
Deferred tax is an estimate computed based on the assumptions and available information as at the reporting date. Hence these estimates
are subject to change based on further developments, for which assumptions have been considered at the time of estimation (i.e. further
clarifications to the new IRD act). Such changes to the estimates will be adjusted during the period the change occurs.

24 INTEREST BEARING LOANS AND BORROWINGS 2022 2021

Rs.’000 Rs.’000
Amount payable after one year (Note 24.1 & 24.3) 380,374 576,049
Amount payable within one year (Note 24.2 & 24.4 ) 715,580 765,777
1,095,954 1,341,826

24.1 Term Loan Payables- payable after one year

Lender Purpose Loan Outstanding
2022 2021
Rs.’000 Rs.’000
Hatton National Bank PLC * Plantation Development Work 114,525 180,837
Commercial Bank PLC Plantation Development Work 100,211 152,381
Standared Chartered Bank Ltd Plantation Development Work 120,000 195,000
Nations Trust Bank PLC* Plantation Development Work - 25,000
HSBC Plantation Development Work 1,344 22,831
Amount payable after one year 336,080 576,049

24.2 Term Loan Payables- payable within one year 2022 2021
Rs.’000 Rs.’000
Commercial Bank PLC* 531,317 544,596
Seylan Bank PLC * - 4,100
Hatton National Bank PLC * 66,312 67,156
Nations Trust Bank PLC* 25,000 50,000
Standard Chartered Bank Ltd* 75,000 80,000
HSBC 7,862 19,925
Amount payable within one year 705,491 765,777

24.3 Lease Creditor - Payable after one year 2022 2021

Rs.’000 Rs.’000
Gross lease liability - (Central Finance) 92,896 -
Interest in Suspense (48,602) -
Net Liability 44,294 -

24.4 Lease Creditor - Payable within one year 2022 2021

Rs.’000 Rs.’000
Gross lease liability - (Central Finance) 14,170 -
Interest in Suspense (4,082) -
Net Liability 10,089 -
Payment terms of lease facilities - 61 monthly installments Effective interest rate - 26.98% p.a

24.5 Impact to Income statement & Cashflow statement 2022 2021

Rs.’000 Rs.’000
Interest charged to P&L during the year (5,141) -
Lease payments made during the year (7,478) -
 54 Kahawatte Plantations PLC | Annual Report 2022

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

24 INTEREST BEARING LOANS AND BORROWINGS (Continued)

24.6 Interest rates and the terms of the repayments of the loans are given below,

Loan Granted
Bank/Institution Interest Rate p.a. Terms of the Repayment
(Rs. Mn)
Short Term Loan 01 month, extendable upto maximum
475 Based on Market Rates
03 months
In 60 equal monthly installments of Rs. 3,378,000
AWPLR + 1.5%
200 commenced from 02.09.2019 & Recommenced In January
(Floor Rate - 8%)
Commercial Bank PLC 2022 after Covid- Relief moratoriums.
6.11% (TB rate +1% as at In 17 monthly installments of Rs. 829,410/- each
14.1
01/04/2021) commenced from January 2022
In 24 monthly installments of Rs. 1,254,000/- each
30.1 AWPLR
commenced from January 2022
In 96 equal monthly installments of Rs. 3,125,000/- each
300 AWPLR+1%
commenced from 10.11.2015
In 95 equal monthly installments of Rs. 2,100,000/- each
200 AWPLR+1% & final installment of Rs.500,000/- commenced from
08.12.2016
Hatton National Bank PLC
In 36 monthly installments of Rs. 361,172 each
commenced from 01.10.2020
13 AWPLR *Above Terms are subject to Covid- Relief moratoriums
received under CBSL Circulars during the period 2020-
2021
In 24 equal monthly installments of Rs. 4,166,667 each
Nations Trust Bank PLC 100 AWPLR+2%
commenced from May 2021
In 20 equal quarterly installments of Rs. 15,000,000
300 Weekly AWPLR - 0.25% each commenced from 01.10.2019 & Recommenced on
Standard Chartered Bank 15.10.2022 after Covid- Relief moratoriums.
Limited In quarterly installments of Rs. 5,000,000 each
40 AWPLR-0.25% re-commenced from 15.10.2021 after Covid- Relief
moratoriums.
Seylan Bank PLC
In 18 monthly installments of Rs. 560,000 each
(Saubhagya COVID 10 4% P.a.
commenced from 23rd March 2021
Relief Loan)
In 6 Month Equal installments of Rs. 2,645,451 each
6.93% (TB rate +1% as at
15.8 commenced from 27.07.2022 after Covid- Relief
01/08/2021)
moratoriums.
In 18 Month Equal installments of Rs. 959,966 each
6.11% (TB rate +1% as at
HSBC 17.2 commenced from 27.12.2021 after Covid- Relief
01/04/2021)
moratoriums.
In 6 Month Equal installments of Rs. 1,760,668 each
6.93% (TB rate +1% as at
10.5 commenced from 27.07.2022 after Covid- Relief
01/08/2021)
moratoriums.

*Security

Commercial Bank PLC

Mortgage over Leasehold right of Craighead Estate for Rs. 85.3 Mn
Corporate Guarantee from MJF Holdings Limited Rs. 300 Mn
Seylan Bank PLC
Mortgage over Leasehold right of Imboolpitiya, Kataboola & Kadeinlena.
Standard Chartered Bank Limited
Corporate Guarntee from MJF Holdings Limited Rs. 300 Mn
Hatton National Bank PLC
Corporate Guarntee from MJF Holdings Limited Rs. 500 Mn
Nations Trust Bank PLC
Board Resolution Short Term Loan Agreement
 Kahawatte Plantations PLC | Annual Report 2022 55

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

25 RETIREMENT BENEFIT OBLIGATIONS 2022 2021

Rs.’000 Rs.’000
Estate Employees (Note 25.1) 477,404 490,858
Head Office Staff (Note 25.2 ) 29,138 27,609
506,542 518,467

25.1 Estate Employees Gratuity Liability as at 31 December 2022 is based on the Actuarial Valuation carried out by Mr. Piyal S. Goonathileke &
Associates as per which accrued liability as at 31st December 2022 is Rs. 477.4 Mn (2021- Rs. 490.8 Mn)

As at 1 January 490,858 573,815

Current Service Cost 43,520 44,011
Interest Cost 56,449 45,905
Actuarial Gain (24,991) (110,756)
565,836 552,975
Payments made during the year (58,846) (28,529)
Transferred to arrears gratuity payable (Note 27) (29,586) (33,588)
As at 31 December 477,404 490,858

25.2 Head Office Gratuity Liability as at 31 December 2022 is based on the Actuarial Valuation carried out by Mr. Piyal S. Goonathileke &
Associates as per which accrued liability as at 31st December 2022 is Rs. 29.1 Mn (2021 -Rs. 27.6Mn)

As at 1 January 27,609 30,324

Current Service Cost 3,812 3,457
Interest Cost 3,175 2,426
Actuarial Gain (2,793) (8,377)
31,803 27,830
Payments made during the year (2,665) (221)
As at 31 December 29,138 27,609

25.3 Provision to Income Statement 106,956 95,799

Actuarial Gain to Other Comprehensive Income (27,784) (119,134)
Net Provision 79,172 (23,335)

25.4 Key Assumptions used by actuary include following: 2022 2021

a) Rate of Interest 18.5% 11.5%
As per the guidelines issued by the Institute of Chartered Accountants of Sri Lanka, the discount rates have been adjusted to convert the coupon
bearing yield to a zero coupon yield to match the characteristics of the gratuity payment liability and the resulting yield to maturity for the purpose
of valuing Employee benefit obligations as per LKAS 19. Further, the salary increment rates are considered appropriate to be in line with the
Company’s targeted future & historical salary increments, when taking into account the current market conditions and inflation rate.
b) Retirement Age
Estate Workers and Staff 60 Years 60 Years
Head Office Staff 60 Years 60 Years
c) Daily Wage Rate Rs 1000 Rs 700
d) Mortality Rates (Age 20-59) 0.11% - 0.90% 0.11% - 0.90%
e) Turnover Rate (Age 20-59) - Staff 1%-6% 1%-6%
Workers 8%-12% 8%-12%
f ) The Company will continue as a going concern

25.5 Sensitivity Analysis - Discount Rate & Salary Increment Rate

Values appearing in the financial statements are very sensitive to the changes of financial and on the financial assumptions used. The
sensitivity was carried out as follows;
2022 2021
Rs.'000 Rs.'000 Rs.'000 Rs.’000
1% Change in Discount rate -1% +1% -1% +1%
Present Value of Retirement Benefit Obligation 528,624 486,359 546,908 492,971

1% Change in Salary Increment Rate -1% +1% -1% +1%

Present Value of Retirement Benefit Obligation 485,512 529,249 492,528 546,931
The sensitivity analysis above has been determined on a method that extrapolates the impact on Retirement Benefit Obligations as a result of reasonable
changes in key assumptions occurring at the end of reporting period.
No. of Employees as at the year end is disclosed under Note 1.5
 56 Kahawatte Plantations PLC | Annual Report 2022

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

25 RETIREMENT BENEFIT OBLIGATIONS (Contd...)

The following payments are expected contributions to the Retirement Benefit Obligations in future years:
2022 2021
Rs.'000 Rs.'000
Within one year 87,754 71,911
Between 1 to 5 years 428,216 330,443
Beyond 5 years 913,149 630,538
1,429,119 1,032,892

Weighted average duration of defined benefit obligation 2022 2021

Rs.’000 Rs.’000
Staff - Head Office 8.3 9.8
Staff - Estate 6.6 9.5
Workers 4.7 5.3

26 NET LIABILITY TO LESSOR OF JEDB / SLSPC ESTATES 2022 2021

Rs.’000 Rs.’000
Gross Liability to Lessor for future periods 459,136 444,432
Finance cost allocated to future periods (315,099) (310,128)
Net Liability to Lessor for future periods (Note 26.1) 144,037 134,304

26.1 Net Liability to lessor for future periods

Payable within one year (Note 26.2) 1,007 813
Payable after one year (Note 26.3) 143,030 133,491
144,037 134,304

26.2 Payable within one year

Gross Liability 20,406 18,912
Finance cost allocated to future periods (19,399) (18,099)
Net Liability to Lessor 1,007 813

26.3 Payable after one year

Payable within two to five years
Gross Liability 81,624 75,648
Finance cost allocated to future periods (75,878) (71,007)
Net Liability to Lessor 5,746 4,641

Payable after five years

Gross Liability 357,106 349,872
Finance cost allocated to future periods (219,822) (221,022)
Net Liability to Lessor 137,284 128,850

Net lease obligations payable after one year 143,030 133,491

 Kahawatte Plantations PLC | Annual Report 2022 57

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

26. NET LIABILITY TO LESSOR OF JEDB / SLSPC ESTATES (Contd...)

26.4 The rental payable under the JEDB/SLSPC lease is Rs. 20.4 Million per annum until 14 June 2045 and this amount to be inflated
annually by Gross Domestic Production (GDP) Deflator. The future liability will be remeasured annually based on the inflated annual
lease rental.

“ Gross “ Future “ Net

Liability “ Liability “ Liability “
Rs.’000 Rs.’000 Rs.’000
Balance as at 1st January 444,432 (310,128) 134,304
Interim remeasurement of ROU as at 1/7/2022 34,363 (23,784) 10,579
Repayments/Set off From Prepayment/T.f.to Interest Payable (19,659) - (19,659)
during year
Interest expense for year - 18,813 18,813
Balance as at 31st December 459,136 (315,099) 144,037

Impact to Income statement & Cashflow statement 2022 2021

Rs.’000 Rs.’000
Interest charged to P&L during the year (18,813) (17,922)
Lease payments made during the year (19,659) (18,618)

27 TRADE AND OTHER PAYABLES

2022 2021
Rs.'000 Rs.'000

Trade Payables 87,021 22,864

Staff Salaries & Wage Payables 215,853 210,914
EPF & ETF Surcharge Payable 58,789 58,789
Arrears Gratuity Payable (Note 27.1) 125,382 133,199
Loan Interest Payable 34,271 11,228
PHDT Payable 8,442 13,049
VAT / NBT/ Income tax Payable 48 7,044
Plant and Machinery Creditor Payable 26,245 43,850
Advances and Refundable Deposits 47,921 51,697
Other Creditors 125,728 68,966
729,700 621,600

27.1 During the year Rs. 44.48 Mn (2021- 56.892 Mn) has been paid under Arrears Gratuity Payable

28 AMOUNTS DUE TO RELATED PARTIES

2022 2021
Trading Non Balance Trading Non Balance
Trading Trading
Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000
Forbes & Walker Tea Brokers (Private) Limited. - 125,200 125,200 - 69,083 69,083
MJF Exports (Private) Limited. 755 30,869 31,624 - 27,772 27,772
MJF Beverages (Pvt) Ltd 1,196 - 1,196 - - -
MJF Holdings Limited 727 - 727 - - -
Dilmah Ceylon Tea Comapany PLC. - - - - 1,419 1,419
2,678 156,069 158,747 - 98,274 98,274
29 RELATED PARTY TRANSACTIONS
58

29.1 Transactions with related parties

Mr. Malik J Fernando, Ms. Minette D A Perera, Mr. Merrill J. Fernando, Mr. Daya P Wickramatunga, Mr. Dilhan C Fernando and Mr. Himendra S Ranaweera who are Directors of the
Company as at 31 December 2022, have direct or indirect interest in all or some of the transactions as stated below. They either individually or indirectly have share ownership
and/or, hold Directorates in such related companies.

2022 2021
Name of the Related Party Relationship Nature of the Transactions Aggregate Aggregate Terms & Aggregate Aggregate
value of the Value of the conditions of RPT value of the Value of the
RPT enterd RPT as a % of RPT enterd RPT as a % of
during the Net Revenue during the Net Revenue
period (Rs period (Rs
‘000) ‘000)
MJF Exports (Pvt) Ltd Related Company - Other Expenses 4,838 0% Reimbusement - 0%
expenses
- Funds for the Purchase of 1,260 0% Capital Grants for - 0%
Agarwood Plants Reimbusement of
expenses
Kahawatte Plantations PLC | Annual Report 2022

- Houpe Estate Solar Power loan 11,069 0% Interest rate 10.5% - 0%

received w.e.f. 1st April
- Interest on Houpe Solar Power 2,694 0% 2022 - 0%
NOTES TO THE FINANCIAL STATEMENTS

Loan
MJF Beverages (Pvt) Ltd Related Company - Rent Income 2,196 0% Rs. 2,196,152 p.a at 3,945 0%
Commercial Terms
- Other Expenses 3,138 0% Reimbusement - 0%
(Contd...)

expenses
Dilmah Propeties (Pvt) Ltd Related Company - Office Rent 1,016 0% 2535 square foot @ 986 0%
Rs 30/- with VAT
PCL Solutions (Pvt) Ltd Related Company - Supply of Plastic Boxes 873 0% At Arms Lengh 4,568 0%
Price
Dilmah Ceylon Tea Company PLC Related Company - Other Expenses- Secretarial 190 0% Secretarial Charges 181 0%
(Ceylon Tea Services PLC) Charges
- Other Expenses 605 0% Reimbusement 1,761 0%
expenses
MJF Tea Gardens (Pvt) Ltd Related Company - Dunkeld Estate Accounting / 1,440 0% Accounting / 2,422 0%
Management fee Management
fee revised fee of
120,000/= p.m.
effetive from 01st
Apr’2021
- Other Expenses 49 0% Reimbusement 637 0%
expenses
29 RELATED PARTY TRANSACTIONS (Contd...)
2022 2021
Name of the Related Party Relationship Nature of the Transactions Aggregate Aggregate Terms & conditions Aggregate Aggregate
value of the Value of the of RPT value of the Value of
RPT enterd RPT as a % of RPT enterd the RPT as
during the Net Revenue during the a % of Net
period (Rs period (Rs Revenue
‘000) ‘000)
Ceylon Tea Farmers ( Pvt.)Ltd Related Company - Park Estate Factory 1,440 0% Accounting / 1,410 0%
Accounting/ Management fee Management
fee revised fee of
120,000/= p.m. effetive
from 01st Apr'2021
- Other Expenses 9,868 0% Reimbusement - 0%
expenses
Patiagama Estate (Pvt) Ltd Related Company - Other Expenses 9 0% Reimbursement - 0%
expenses
Forbes & Walker Related Company - Entering of sales contracts 656,599 10% 591,204 14%
Commodity Brokers (Pvt) Ltd According to the
- Brokerage charges 6,566 0% 4,375 0%
Terms & conditions
- Warehouse charges 2,069 0% 1,403 0%
of colombo Brokers
- Other charges 39 0% Association 22 0%
NOTES TO THE FINANCIAL STATEMENTS

- Interest on prompt advances 492 0% - 0%

Forbes & Walker Tea Related Company - Entering of sales contracts 5,433,477 87% 3,474,522 81%
Brokers (Pvt) Ltd
- Brokerage Paid 54,335 1% According to the 34,735 1%
- Other Charges 15,876 0% 19,188 0%
(Contd...)

Terms & conditions

- Interest on prompt advances 19,445 0% of colombo Brokers 13,845 0%
Association
- Short term Loan received 3,331,000 53% 2,485,700 58%
- Short term Loan repayment 3,274,883 52% (2,453,162) 57%

Transactions with related parties are carried out in the ordinary course of business on a relevant commercial terms.

29.2 Amounts due to and due from the above Companies are disclosed in note 17.1, 18 and 28 and of the face of the Balance Sheet.
29.3 Corporate Guarantees given by Related Party companies as at 31st December 2022 are disclosed under Notes 19.1 and 24.6.
29.4 There were no transaction with Close Family Members during the year ended 31st December 2022.
29.5 Compensation of Key Management Personnel
Key management personnel include members of the Board of Directors of the Company, the Ultimate Parent Company MJF Holdings Limited and Parent Company, Forbes
Plantations (Pvt) Ltd.
2022 2021
Kahawatte Plantations PLC | Annual Report 2022

Short-Term Employee Benefits 1,260,000 900,000

Long-Term Employee Benefits - -
59

Total 1,260,000 900,000

 60 Kahawatte Plantations PLC | Annual Report 2022

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

30 Financial Risk Management

(i) Overview
The Company has exposure to the following risks from its use of financial instruments:

• Credit risk
• Liquidity risk
• Market risk
• Operational risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes
for measuring and managing risks, and the Company’s management of capital.

(ii) Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework.
The Company’s risk management policies are established to identify and analysis the risks faced by the Company, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits. The Company’s Audit Committee oversees how management monitors
compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework
in relation to the risks faced by the Company. The Company’s Audit Committee is assisted in its oversight role by Internal Audit. Internal
Audit undertakes both regular and adhoc reviews of risk management controls and procedures, the results of which are reported to the
Audit Committee.

(iii) Credit Risk

Credit risk is the risk of financial loss to the Company if a customer fails to meet its contractual obligations, and this principally arises from
the Company’s receivables from customers.

Exposure to Credit Risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting
date was as follows;
Carrying Amount
2022 2021
Rs.'000 Rs.’000
Trade and Other Receivables 115,175 103,192
Amount due from Related Company 9,390 4,591
Balances with Banks 31,042 29,009
155,607 136,792
Management of Credit Risk
Trade and other receivables
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, Management also
considers the factors that may influence the credit risk of its customer base, including the default risk associated with the industry and
country in which the customer operates.

The Company limits the exposure to credit risk from the trade receivables due to the establishment of maximum payment period of 7 days
from the tea brokers. More than 90% of the Company customers have been transacting with the related party company for over the years,
and none of these customers’ balances have been written off or are credit impaired at the reporting date. In monitoring customer credit
risk, customers are grouped according to their credit characteristics, including whether they are an individual or a legal entity, whether
they are a wholesale, retail or end-user customer, their geographic location, industry, trading history with the company and existence
of previous financial difficulties. The Company trades only with recognized, credit-worthy third parties. In addition, receivable balances
are monitored on an ongoing basis with the results that the Company’s exposure to bad debts is not significant. The Company does not
require collateral in respect of most of trade and other receivables.

Credit quality of Financial Assets

A analysis of the credit quality of trade receivables that were neither past due nor impaired and the ageing of trade receivables that were
past due but not impaired as at 31st December 2022 is as follows

Carrying Amount
As at 31st December 2022 2021
Rs.’000 Rs.’000

Below 30 days 22,866 27,676

Over 30 days - -
(-) Provisions made - -
22,866 27,676
Amounts due from related companies

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each related party. The Company does not
require a provision for impairment in respect of amounts due from related parties.

The company held balances with banks of Rs. 31 Mn As at 31st December 2022 (2021 : 29 Mn) which represents its maximum credit
exposure on these assets.
 Kahawatte Plantations PLC | Annual Report 2022 61

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

30 Financial Risk Management (Continued)

Credit quality analysis of financial investments

2022 2021
Rs.'000 Rs.’000
Cash at Bank having credit ratings 31,003 28,907
AA+ to AA- 39 102
CC+ to CC- 31,042 29,009

The above has been derived as per the Company’s risk management policy of using the carrying values in the Statement of
Financial Position. There were no off - balance sheet exposures as at the date. This does not include the exposure that would arise
in the future as a result of changes in values.

Risk response to credit risk on financial investments

- The Company’s investment policy prohibits non-graded investments, unless specifically authorised.
- Regularly review credit worthiness of counterparties and take necessary actions if required.
- Appropriate actions are implemented when the investments are expected to be high credit risk.

(iv) Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity risk is to ensure, as
far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or
risking damage to the Company’s reputation.

The Company maintains the following lines of credit,

• Rs 110 Mn, 600 Mn & 100 Mn Overdraft facilities that is secured by a letter of negative pledge over the Company’s
unencumbered assets. Interest would be payable at the rate of AWPLR+3%, HSBC COF+2% and AWPLR+.75%
• Term loan facilities as depicted in Note 24.

The following are the contractual maturities of financial liabilities.

Carrying Less than More than Total
Amount 1 year 1 year
Rs.’000 Rs.’000 Rs.’000 Rs.’000
As at 31 December 2022
Financial Liabilities (Non- Derivative)
Interest Bearing Borrowings 1,095,954 749,851 380,374 1,130,225
Liability to JEDB/SLSPC Estates 144,037 20,406 438,730 459,136
Other Amounts Due to Related Company 158,747 158,747 - 158,747
Trade and Other Payables 681,779 681,779 - 681,779
Bank overdraft 805,656 805,656 - 805,656
Total 2,886,174 2,416,439 819,104 3,235,543

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different
amounts.
Carrying Less than More than Total
Amount 1 year 1 year
Rs.’000 Rs.’000 Rs.’000 Rs.’000
As at 31 December 2021
Financial Liabilities (Non- Derivative)
Interest Bearing Borrowings 1,341,826 777,005 576,049 1,353,054
Gross Liability to JEDB/SLSPC Estates 134,304 18,912 425,520 444,432
Other Amounts Due to Related Company 98,274 98,274 - 98,274
Trade and Other Payables 569,903 569,903 - 569,903
Bank overdraft 794,852 794,852 - 794,852
Total 2,939,159 2,258,946 1,001,569 3,260,515

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different
amounts.

 62 Kahawatte Plantations PLC | Annual Report 2022

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

30 Financial Risk Management (Continued)

(v) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Company’s
income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while optimizing the return.

(a) Currency risk

The Company is exposed to currency risk only on purchases that are denominated in a currency other than Sri Lankan Rupees
(LKR). The Foreign currencies in which these transactions primarily denominated are United Stated Dollars (USD).

Since the frequency of the transaction done in foreign currency is very low, the Company is not exposed to a higher degree of
currency risk.

The summary quantitative data about the Company’s exposure to currency risk as reported in the management of the Company
is as follows.
2022 2021
Under Trade and Other Payable as at 31st December - USD 69,000 140,000
Closing Rate as at 31st December (USD to LKR) - LKR 371.6100 202.9992

Sensitivity Analysis
If the exchange rates would have been higher by 5% and all other variables were held constant, the profit before tax for the period
ended 31 December 2022 would have Increased/(decreased) as follows,
Increase/(decrease) +/(-)
in exchange rate Rs.
Increase 5% (1,282,055)
Decrease -5% 1,282,055

(b) Interest rate risk

The company’s exposure to the risk of changes in the market interest rate relates primarily to company’s long-term debt obligations
with floating interest rates. The company manages its interest rate risk by having a balanced portfolio of fixed and variable rate
loans and borrowings.

At the reporting date, the company’s interest-bearing financial instruments and respective interest cost were as follows

2022 (Rs.’000) 2021 (Rs.’000)

Variable Fixed Total Carrying Variable Fixed Total Carrying
interest interest Interest Amount interest interest Interest Amount
cost cost Cost as at 31st cost cost Cost as at 31st
Dec Dec
Variable Rate Instruments
Financial liabilities
Net Liability to Lessor of 18,813 - 18,813 144,037 17,922 - 17,922 134,304
JEDB/SLSPC Estates
Bank Overdrafts 112,911 - 112,911 805,656 54,216 - 54,216 794,852
Term Loans 260,847 50 260,897 1,095,954 106,858 2,946 109,804 1,341,826
392,571 50 392,621 2,045,647 178,996 2,946 181,942 2,270,982

Sensitivity Analysis
If the interest rates would have been higher by 100 basis points and all other variables were held constant, the profit before tax for
the period ended 31 December 2022 would have Increased/(decreased) as follow

Increase/(decrease) +/(-)
in basis points Rs.
Increase +100 22,054
Decrease -100 (22,054)

(vi) Capital management

The Company’s policy is to maintain a strong capital base so as to maintain shareholder, creditor and market confidence and
to sustain future development of the business. The Board of Directors monitors the return on capital and level of dividends to
ordinary shareholders.
 Kahawatte Plantations PLC | Annual Report 2022 63

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

30 Financial Risk Management (Continued)

The Management seeks to maintain a lower level of gearing to go in line with the risk limits they have set for the Company based
on the Company’s risk capacity. Accordingly, the borrowings are kept at a minimum level and considerable part of the borrowings
comprise Bank Overdrafts with variable interest rates & Short-Term loans with variable interest rates being used only to manage the
working capital requirements of day to day operations and finance the acquisition or construct of capital assets of the company.

The Company’s Net Debt to Equity ratio at the end of the reporting period was as follows:

2022 2021
Rs Rs
Total Liabilities 4,226,860 3,938,566
(-) Cash and Cash Equivalents (36,423) (29,065)
4,190,437 3,909,501
Total Equity 1,538,914 1,146,109
Net Debt to Equity Ratio 272% 341%
There were no changes in the Company’s approach to capital management during the year and the Company is not subject to externally
imposed capital requirements.

(vii) Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company’s processes, person-
nel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal
and regulatory requirements and generally accepted standards of corporate behavior. Operational risks arise from all of the Company’s
operations.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior manage-
ment. This responsibility is supported by the development of overall Company standards for the management of operational risk in the
following areas:

• Requirements for appropriate segregation of duties, including the independent authorization of transactions
• Requirements for the reconciliation and monitoring of transactions
• Compliance with regulatory and other legal requirements
• Documentation of controls and procedures
• Requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to
address the risks identified
• Requirements for the reporting of operational losses and proposed remedial actions
• Development of contingency plans
• Training and professional development
• Ethical and business standards
• Risk mitigation, including insurance when this is effective

Compliance with Company standards is supported by a program of periodic reviews undertaken by Internal Audit. The results of Internal
Audit reviews are discussed with the Management, summaries submitted to the senior Management of the Company.

31 FAIR VALUE MEASUREMENT

The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the
measurements.

Level I: Quoted market price (unadjusted) in an active market for an identical instrument.

Level II: Valuation techniques based on observable inputs, either directly – i.e. as prices or indirectly – i.e. derived from prices. This cat-
egory includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or
similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly
or indirectly observable from market data.

Level III: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation tech-
nique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation.
This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable
adjustments or assumptions are required to reflect differences between the instruments.

Fair values of Financial Assets and Financial Liabilities that are traded in active markets are based quoted market prices or dealer price
quotations for all other financial instruments the company determines fair value using valuation techniques.

Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market
observable prices exist. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit
spreads and other premia used in estimating discount rates. The objective of the valuation technique is to arrive at a fair value determi-
nation that reflect the price of the financial instrument at the reporting date, that would have determined by the market participants
acting at the arm’s length.

Further information about the assumptions made in measuring fair value is included in the following Notes

- Note 14 Property Plant and Equipment

- Note 15 Biological Assets
- Note 31.1 Financial Instrument
 64 Kahawatte Plantations PLC | Annual Report 2022

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

31.1 Financial Instruments not carried at Fair Values by fair value hierachy
The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in
the fair value hierarchy into which each fair value measurement is categorized. The fair values of financial assets and liabilities,
together with the carrying amounts shown in the Statement of Financial Position, are as follows
It does not include fair value information of financial assets & liabilities not measured at fair value, if the carrying amount is
reasonable approximation of fair value.

As at 31st December 2022 Carrying

Amount Level I Level II Level III Total
Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000
Assets carried at amortised cost
Cash and Cash Equivalents 36,423 - - - 36,423
Trade and other receivables 115,175 - - - 115,175
Amounts Due from Related Party 9,390 - - - 9,390
160,988 - - - 160,988

Other Financial liabilities

Interest bearing Loans and Borrowings 1,095,954 - - - 1,095,954
Net Liability to JEDB/SLSPC Estates 144,037 - - - 144,037
Amounts Due to related Companies 158,747 - - - 158,747
Trade and Other Payables 681,779 - - - 681,779
Bank Overdraft 805,656 - - - 805,656
2,886,173 - - - 2,886,173

As at 31st December 2021 Level I Level II Level III Total

Rs.’000 Rs.’000 Rs.’000 Rs.’000
Assets carried at amortised cost
Cash and Cash Equivalents 29,065 - - - 29,065
Trade and other receivables 103,191 - - - 103,191
Amounts Due from Related Party 4,591 - - - 4,591
136,847 - - - 136,847
Other Financial liabilities
Interest bearing Loans and Borrowings 1,341,826 - - - 1,341,826
Net Liability to JEDB/SLSPC Estates 134,304 - - - 134,304
Amounts Due to related Companies 98,274 - - - 98,274
Trade and Other Payables 569,903 - - - 569,903
Bank Overdraft 794,852 794,852
2,939,159 - - - 2,939,159

31.2 Fair value hierarchy of the Financial Instruments carried at Fair Value
The company does not account for any financial instruments carried at fair value as at the reporting date.

32 Reconciliation of Liabilities Arising From Financing Activities

Sri Lanka Accounting Standard - LKAS 7 (Statement of Cash flows), requires an entity to disclose information that enables users of
Financial Statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash
flows and non-cash changes. Accordingly, changes in liabilities arising from financing activities for the year ended 31st December
2022 are disclosed below.
The funds borrowed by the Company are given in Note 24 and 26.
2022 2021
Rs. Rs.
Balance as at 01st January 1,476,130 1,429,527
Net Cash Flows from Financing Activities (327,392) 93,336
Non Cash Changes 91,253 (46,733)
Balance as at 31st December 1,239,991 1,476,130
33 CAPITAL COMMITMENTS

There were no material capital commitments as at the reporting date. However, the budgeted capital development program for the next year is
approximately Rs. 281 Mn.
 Kahawatte Plantations PLC | Annual Report 2022 65

NOTES TO THE FINANCIAL STATEMENTS (Contd...)

34 CONTINGENT LIABILITIES AND COMMITMENTS

34.1 Hunuwella Estate

An extent of 59.57 Ha. on Hunuwella Estate in the district of Ratnapura (Full extent 988.02 Ha.) owned by Sabaragamuwa Maha Saman Devale, Rat-
napura was leased to the Hunuwella Tea & Rubber Company Limited for a period of 30 years from 1 December 1968 to 1 December 1998.

Mistakenly, the above area taken over by Land Reform Commission in terms of the Land Reform Commission Act was subsequently vested in the
Sri Lanka State Plantations Corporation (SLSPC) on 21 April 1994. This area is a part of Hunuwella Estate assigned to the Company on the date of
incorporation. It is expected that the temple authorities to take over the Land on the expiry of the lease period. As at the Balance Sheet date no
adjustment has been made to the Accounts in this regard.

35 IMPACT FROM RAPID CHANGE IN MACRO ECONOMIC FACTORS

The Macro Economic Environment of Sri Lanka

The Company’s operations are in Sri Lanka that has been witnessing, severe events that have set off an interconnected fiscal, monetary and econom-
ic crisis and as well as deep recession that have reached unprecedented levels. Sovereign credit ratings have witnessed a series of downgrades by
all major rating agencies and reached the level of ‘Default Imminent (C)’ when, on April 12, 2022, the Sri Lankan Government announced that it will
withhold payment on the bonds due and discontinuation of payments on all of its foreign debts.

Due to drastic decrease in foreign reserves of Sri Lanka, Central bank of Sri Lanka decided to float the rupee from 10th March 2022 and as a further
measurement, the CBSL increased the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 700
basis points to 13.50 per cent and 14.50 per cent, respectively, effective from the close of business on 08 April 2022. With effective from 3rd March
2023 the aforementioned rates were increased to 15.5% & 16.5% respectively. These changes in underlying economic factors have fluctuated the
prices of inputs and outputs of the company and the plantation industry as elaborated below.

Throughout this sequence of events, the ability of the Sri Lankan government and the banking sector in Sri Lanka to borrow funds from international
markets was significantly affected. Banks have imposed unofficial capital controls, restricted transfers of foreign currencies outside Sri Lanka, signifi-
cantly reduced credit lines to companies and withdrawals of cash to private depositors, all of which added to the disruption the country’s economic
activity, as the economic model of Sri Lanka relies mainly on imports and consumption. Businesses are downsizing, closing or going bankrupt, and
unemployment and poverty are rising fast and have reached unprecedented levels

However as per CBSL Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100)
decreased to 35.3% in April 2023 from 50.3% in March 2023. While it was observed that the exchange rate appreciated notably in March 2023 sup-
ported by improved market sentiments towards the finalisation of the IMF-EFF arrangement and improvements in liquidity conditions in the do-
mestic foreign exchange market driven by policy relaxation allowed by the Central Bank. However the benefit was slowly reflecting on the imported
consumable prices related to the plantations industry while it was quickly affected adversely in tea & rubber auction prices in 2023.

Impact on Internal Operations & Business Continuity

Since March 2023, the profitability of the company was affected from the lower tea prices and rubber prices traded in auctions due to sudden appre-
ciation of rupee as elaborated above. Slow reduction in Prices of inputs such as fertilizer, packing materials, fuel, chemical etc. resulted an decrease
in cost of production to some extent while electricity charges were increased by 66% by CEB with w.e.f. 15th February 2023. The GOSL decision of
Reversal of chemical fertilizer & chemical import ban & low interest loans scheme for fertilizer purchase & replanting will further reduce the impact in
future. Further, the weekly AWPR of commercial banks have been dropped from the range of 28% - 25% in January ‘23 to range of 22%- 21% in April
23’ which will continue to considerably lessen the burden of finance cost of the company.

Impact on Assets & Impairments
As a result of the steps taken by company, Company could maintain the standard operations without causing disturbance to performance of the
company and its assets. Therefore, no requirement arose on impairment of Financial and Non-Financial Assets of the company while the Company
has improved the plant and machinery for serving a better quality of tea to the market.

Company’s responses on the impact on the future operations and the financial condition of the Company
The Management closely monitor and develop mitigating factors for potential downside risks to the business that can arise due to rapid changes
in macro-economic factors and will continue to strengthen the working capital, humanitarian sustainability initiative and cost mitigating factors to
continue the business operations without any disruption, while timely addressing the new opportunities and threats arising from the situation.

36 GOING CONCERN
The Company has recorded a profit of Rs. 312 Million during the year ended 31st December 2022 (Loss of Rs. 106 Mn - 2021) and as of that date,
accumulated losses amounted to Rs. 501 Million (Rs. 832 Mn - 2021). Further, the Company’s current liabilities exceeded its current assets by Rs. 1,456
Million (Rs. 1,709-2021) and the Company stands a positive equity of Rs. 1,539 Mn (2021 - Rs 1,146 Mn) as at 31st December 2022.

The Management have made an assessment of the Company’s ability to continue as a going concern. The Financial Statements have been prepared
on the going concern basis because the management have assessed the sources of funding available and consolidation of core business and growth
plans.

In assessing the appropriateness of the use of going concern basis of accounting in the preparation of financial statements the Board of Directors
conducted a comprehensive review of the Company’s affairs including, but not limited to:

• The cash flow forecast of the Company for the period up to next 12 months
• The Company’s ability of settling the outstanding bank loans, lease rental, statutory payables and other liabilities when they fall due and payable
• Revenue and profitability forecasts for the Company not limited to next financial year, but having an outlook beyond 31st December 2023, and
• Impact of rapid change in macroeconomic factors have been considered as in note 35

Company’s rigorous strategies aimed at increase in capacity and quality by timely investing in new machineries, upgrading factories intend to
decrease the losses and therefore the accumulated losses. The workflow of factories is re-invented to keep the minimum stock balance to improve
the liquidity. Further, to improve the financial position of the Company the Management have taken several steps such as Restructure of short-term
borrowings to long term borrowings and extending of current tenor period with borrowing institutions etc.

As a consequence of the above, the Management firmly believe that the Company will be able to continue as a going concern into the foreseeable
future and, accordingly, the Financial Statements of the Company have been prepared on a going concern basis without making adjustments

EVENTS OCCURING AFTER THE REPORTING DATE

37 Subsequent to the reporting date, no material circumstances have arisen which requires adjustments to or disclosure in these financial statements.
 66 Kahawatte Plantations PLC | Annual Report 2022

Information to Shareholders and Investors

1 STOCK EXCHANGE LISTING
The issued Ordinary Shares of Kahawatte Plantations PLC are listed with the Colombo Stock Exchange

2 DISTRIBUTION OF SHAREHOLDINGS

Range 31 December 2022 31 December 2021

From To No.of Shares % No.of Shares % No.of Shares % No.of Shares %
Holders Held Holders Held
1 1,000 19,124 96.72% 2,904,122 2.92% 18,718 99.09% 2,719,869 2.73%
1,001 10,000 497 2.51% 1,962,548 1.97% 143 0.76% 468,314 0.47%
10,001 100,000 131 0.66% 3,501,744 3.52% 17 0.09% 392,301 0.39%
100,001 1,000,000 14 0.07% 2,664,613 2.68% 4 0.02% 1,321,719 1.33%
1,000,001 and over 6 0.03% 88,373,665 88.90% 7 0.04% 94,504,489 95.07%
Total 19,772 100.00% 99,406,692 100% 18,889 100.00% 99,406,692 100.00%

3 CATEGORIES OF SHAREHOLDERS

No. of Shares Held 31 December 2022 31 December 2021

No.of Shares % No.of Shares % No.of Shares % No.of Shares %
Holders Held Holders Held
Local Individuals 19,640 99.33% 9,789,771 9.85% 18,817 99.62% 6,057,427 6.09%
Local Institutions 123 0.62% 89,526,450 90.06 64 0.34% 93,268,579 93.83%
Foreign Individuals 9 0.05% 90,251 0.09 8 0.04% 80,686 0.08%
Foreign Institutions 0 0.00% 0 0.00 0 0.00% 0 0.00%
Total 19,772 100.00% 99,406,692 100% 18,889 100.00% 99,406,692 100.00%

4 MAJOR SHAREHOLDERS

Name of the Shareholder As at 31 December 2022 As at 31 December 2021

No.of Shares % No.of Shares %
Held Held
01 FORBES PLANTATIONS (PRIVATE) LTD 50,955,581 51.26% 50,955,581 51.26%
02 MJF TEAS PRIVATE LIMITED 19,516,886 19.63% 19,516,886 19.63%
03 DILMAH CEYLON TEA COMPANY PLC 12,571,800 12.65% 12,571,800 12.65%
04 BANK OF CEYLON A/C CEYBANK UNIT TRUST 3,108,636 3.13% 6,153,581 6.19%
05 MR T.L.M. NAWASH 1,196,961 1.20% 2,531,207 2.55%
06 ACCESS ENGINEERING PLC 1,023,801 1.03% - 0.00%
07 HATTON NATIONAL BANK PLC/ALMAS HOLDINGS (PRIVATE) LIMITED 494,258 0.50% 300,625 0.30%
08 BANK OF CEYLON NO. 1 ACCOUNT 371,164 0.37% 733,433 0.74%
09 MRS H.M.A.R.K. KALUHENDIWELA 330,479 0.33% - 0.00%
10 PEOPLE'S LEASING & FINANCE PLC/MR. T.M.D.P. TENNAKOON 175,000 0.18% - 0.00%
11 HATTON NATIONAL BANK PLC/ALMAS CAPITAL (PRIVATE) LIMITED 160,524 0.16% - 0.30%
12 MR A.L.N. DUNUSINGHE 156,000 0.16% - 0.00%
13 MR G.R. DE LIVERA 151,104 0.15% - 0.00%
14 CITIZENS DEVELOPMENT BUSINESS FINANCE PLC/RATHNAYAKE
132,350 0.13% - 0.00%
MUDIYANSELAGE NUWAN CHATHURANGE BANDARA
15 MR B.P.C.J. DE SILVA 125,000 0.13% 140,000 0.14%
16 MR S. YUSOOF 122,000 0.12% - 0.00%
17 DFCC BANK PLC/D.K.T. PATHIRAGE 114,356 0.12% - 0.00%
18 MR H. GURUGE 111,671 0.11% - 0.00%
19 MR T.G.A. DE SILVA 111,111 0.11% - 0.00%
20 MR C.C. ALAHAPPERUMA 109,596 0.11% - 0.00%
Total of Major Shareholders 91,038,278 91.58% 92,903,113 93.46%
Others 8,368,414 8.42% 6,503,579 6.54%
Grand Total 99,406,692 100.00% 99,406,692 100.00%
 Kahawatte Plantations PLC | Annual Report 2022 67

Information to Shareholders and Investors (Contd...)

5 STATEMENT OF EACH DIRECTOR’S HOLDING IN SHARES OF THE EQUITY

No. of Shares Held 31 December 2022 31 December 2021

No.of Shares % No.of Shares %
Holders Holders
01 Mr. Merrill J Fernando Nil - Nil -
02 Mr. Malik J Fernando Nil - Nil -
03 Ms. Minette D A Perera 4,000 0.005 4,000 0.005
04 Mr. Dilhan C Fernando Nil - Nil -
05 Mr.Himendra S. Ranaweera Nil - Nil -
06 Mr. Daya P Wickramatunga Nil - Nil -
07 Mr. Nimal Maxwell Amerasekara Nil - Nil -

6 Public Holding As at 31 As at 31
December December 2021
2022
The percentage shares held by the Public 16.46% 16.46%
Total no.of shareholders who hold the public holding % 19,768 18,854

7 Market Value 2022 2021

Highest Rs.41.50 01-Sep-22 Rs.34.80 07-Jan-21
Lowest Rs.19.00 14-Mar-22 Rs.22.50 29-Nov-21

Closing Rs. 24.50 Rs. 27.60

8 Share Trading 2022 2021

No.of Transactions 15,743 936
No.of Shares traded 26,948,996 612,365
Value of shares traded ( Rs.) 919,132,493.80 176,802,676.80

9 Float adjusted market capitalization

The Float-adjusted market capitalization as at 31st December 2022 - Rs. 400,781,412.50
The Company is listed on the Dirisavi Board having complied with a minimum public holding of 10% of the total listed shares in the
hands of a minimum of 200 public shareholders. The Float-adjusted market capitalization of the Company falls under option 2 of
Rule 7.14.1 (i) (b) of the Listing Rules of the Colombo Stock Exchange.

10 Golden Shareholder
The Golden Share of Rs.10/- is currently held by the Secretary to the Treasury and should be owned either directly by the Govern-
ment of Sri Lanka or by a 100% Government owned public Company
 68 Kahawatte Plantations PLC | Annual Report 2022

TEN YEAR SUMMARY

Year Ended 31 December 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000
TRADING RESULTS
Revenue 6,261,316 4,267,216 2,979,643 2,730,645 3,105,691 3,784,762 2,775,758 2,729,838 3,078,878 3,511,912 3,001,559
Other Income 139,543 75,399 52,581 64,558 91,887 56,690 32,010 33,166 35,573 24,277 26,792
Operating Profit / (Loss) 958,234 89,340 (274) (175,626) (39,956) 223,925 (20,427) (141,574) 221,764 263,151 110,200
Net Finance cost (397,623) (183,806) (237,544) (275,835) (241,583) (201,261) (136,873) (72,317) (77,375) (110,170) (91,669)
Taxation (248,573) (11,732) (7,949) (58,093) 32,648 (4,628) 18,846 21,604 (9,651) (21,918) (1,019)
Net profit / (Loss) 312,038 (106,198) (245,767) (509,554) (248,891) 18,037 (138,454) (192,287) 116,960 116,748 24,462
Total Comprehensive Income 392,805 11,348 (294,593) (189,329) (163,699) 104,321 (14,200) (163,500) 12,355 33,542 61,666
BALANCE SHEET
Funds Employed
Stated Capital 1,698,952 1,698,952 1,698,952 898,760 898,760 898,760 898,760 898,760 898,760 898,760 898,760
Revaluation Reserve 340,596 279,277 268,356 268,356 - - - - - - 26,753
Revenue Reserves (500,634) (832,120) (832,547) (537,954) (31,430) 132,269 27,948 42,148 205,648 193,293 128,302
Total Equity 1,538,914 1,146,109 1,134,761 629,162 867,330 1,031,029 926,708 940,908 1,104,408 1,092,053 1,053,815
Deffered Income 275,172 288,448 284,211 300,960 311,373 317,912 318,397 320,170 301,058 307,095 316,704
Deffered Tax Liability 511,052 140,795 140,795 140,795 30,572 49,351 30,630 28,982 45,746 36,095 18,873
Retirement Benefit Obligations 506,542 518,467 604,139 496,254 540,057 603,298 659,359 749,454 717,580 545,664 429,210
Net Liability to Lessor 143,030 133,491 129,887 127,762 73,063 74,703 77,797 79,256 80,658 80,658 82,006
Long Term Loans 380,374 576,049 585,373 678,694 283,344 367,344 940,045 799,013 558,867 355,798 120,404
Non Current Liabilities 1,816,170 1,657,250 1,744,405 1,744,465 1,238,410 1,412,607 1,586,254 1,648,883 1,672,601 1,325,310 967,197
3,355,084 2,803,359 2,879,166 2,373,627 2,105,739 2,443,636 2,512,962 2,589,791 2,777,009 2,417,363 2,021,012
Assets Employed
Non-Current Assets 4,811,271 4,512,714 4,432,874 4,496,383 4,038,111 3,960,188 3,740,488 3,571,969 3,262,110 2,826,174 2,596,303
Current Assets 954,503 571,961 603,847 534,844 548,281 617,132 580,042 470,822 602,536 606,420 512,012
Current Liabilities (2,410,690) (2,281,316) (2,157,555) (2,657,600) (2,480,653) (2,133,684) (1,807,568) (1,453,000) (1,087,637) (1,015,231) (1,087,303)
3,355,084 2,803,359 2,879,166 2,373,626 2,105,739 2,443,636 2,512,962 2,589,791 2,777,009 2,417,363 2,021,012
Key Indicators
Operating Profit % 15.30% 2.09% -0.01% -6.43% -1.29% 5.92% ('0.74%) (5.19%) 7.20% 7.49% 3.67%
Current Ratio 0.40 0.25 0.28 0.20 0.22 0.29 0.32 0.32 0.55 0.60 0.47
Return on Shareholder's Fund 20.3% -9.3% -21.7% -81.0% -28.8% 1.7% (15%) (20.4%) 10.6% 10.7% 1.7%
Basic Earnings / (Loss) per 3.14 (1.07) (3.07) (6.38) (3.12) 0.23 (1.73) (2.41) 1.46 1.46 0.31
Share
Net Assets per Share 15.48 11.53 11.42 7.88 10.86 12.91 11.60 11.78 13.82 13.67 13.19
Production (kg '000)
Tea 4,385 5,568 4,202 4,222 4,450 5,083 4,785 5,524 5,387 6,433 6,084
Rubber 878 1,111 1,147 971 1,061 976 1,096 859 875 1,039 1,094
 Kahawatte Plantations PLC | Annual Report 2022 69

Corporate Information
Name of Company Registrar
Kahawatte Plantations PLC P W Corporate Secretarial (Pvt) Ltd
(Formerly known as Kahawatte Plantations Ltd) No. 3/17, Kynsey Road,
Colombo 08,
Legal Form Sri Lanka.
A Public Quoted Public Company with limited liability. Incorporated Tel: 011 4640360-3
in Sri Lanka on 15th June 1992
Secretaries
Company Registration Number Ms. Jayanga Wegodapola
PQ 109 Attorney at Law and Notary Public, Company Secretary
MJF Group
Accounting Year End No. 111, Negombo Road, Peliyagoda.
31st December Tel : +94 11 755 7155

Stock Exchange Listing Registered Office

The ordinary shares of the Company are listed on the Colombo Stock No.111, Negombo Road,
Exchange of Sri Lanka Peliyagoda,
Sri Lanka.
Principle Line of Business Tel: 011 4724960
Cultivation, manufacture and sale of Tea and Rubber E-Mail : info@kwpl.lk

Directors Bankers
Mr. Merrill J Fernando - Chairman Bank of Ceylon PLC
Mr. Malik J Fernando - Director Commercial Bank of Ceylon PLC Nation Trust Bank
Ms. Minette D A Perera - Director Hongkong and Shanghai Banking Corporation Ltd.
Mr. Dilhan C Fernando - Director Sampath Bank PLC
Mr. Himendra S Ranaweera - Director Seylan Bank PLC Standard Chartered Bank
Mr. Daya P Wickramatunga - Director Union Bank of Colombo Ltd Hatton National Bank PLC
Mr. Nimal M Amerasekera - Director
Auditors
Management Committee Messrs KPMG Chartered Accountants,
Dr. Dan Seevaratnam No. 32 A,
Mr. Darshana Gunasekera Sir Mohamed Macan Markar Mawatha,
Mr. Vinesh Athukorala Colombo 3,
Mr. Chaminda Gunaratne Sri Lanka.
Mr. Tony Bertus

Managing Agent
Forbes Plantations (Pvt) Limited,
No. 111,
Negombo Road,
Peliyagoda,
 70 Kahawatte Plantations PLC | Annual Report 2022

Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the Thirtieth (30th) Annual General Meeting of Kahawatte Plantations PLC to be convened on 22nd June 2023,
at the Board Room of MJF Group, 111 Negombo Road, Peliyagoda, at 3.00 p.m. through the Microsoft Teams virtual platform for the following
purposes:

1. Read the notice convening the meeting.

2. To receive and consider the Annual Report of the Board of Directors on the affairs of the Company and the Statement of Accounts for the
year ended 31st December 2022 and the Report of the Auditors thereon.

3. To re-appoint as a Director, Mr. Merrill Joseph Fernando who retires in terms of Section 210 of the Companies Act No. 07 of 2007, by
passing the following resolution:

“IT IS HEREBY RESOLVED THAT that the age limit of 70 years referred to in Section 210 of the Companies Act shall not apply to Mr. Merrill
Joseph Fernando and Mr. Merrill Joseph Fernando be and is hereby re-appointed a Director of the Company as provided for in Section
211(1) of the Companies Act No. 07 of 2007.”

4. To re-appoint as a Director, Mr. Daya Prabath Wickramatunga who retires in terms of Section 210 of the Companies Act No. 07 of 2007, by
passing the following resolution:

“IT IS HEREBY RESOLVED THAT that the age limit of 70 years referred to in Section 210 of the Companies Act shall not apply to Mr. Daya
Prabath Wickramatunga and Mr. Daya Prabath Wickramatunga be and is hereby re-appointed a Director of the Company as provided for
in Section 211(1) of the Companies Act No. 07 of 2007.”

5. To re-appoint as a Director, Mr. Nimal Maxwell Amerasekera who retires in terms of Section 210 of the Companies Act No. 07 of 2007, by
passing the following resolution:

“IT IS HEREBY RESOLVED THAT that the age limit of 70 years referred to in Section 210 of the Companies Act shall not apply to Mr. Nimal
Maxwell Amerasekera and Mr. Nimal Maxwell Amerasekera be and is hereby re-appointed a Director of the Company as provided for in
Section 211(1) of the Companies Act No. 07 of 2007.”

6. To re-appoint as a Director, Mr. Himendra Somasiri Ranaweera, who retires in terms of Section 210 of the Companies Act No.7 of 2007, by
passing the following resolution:

“IT IS HEREBY RESOLVED THAT the age limit of 70 years referred to in Section 210 of the Companies Act shall not apply to Mr. Himendra
Somasiri Ranaweera and Mr. Himendra Somasiri Ranaweera be and is hereby re-appointed a Director of the Company as provided for in
Section 211(1) of the Companies Act No. 07 of 2007.”

7. To re-elect Ms. Minette D. A. Perera who retires by rotation in terms of Article 25(1) of the Articles of Association as a Director.

8. To re-appoint the retiring Auditors Messrs. KPMG, Chartered Accountants as the Company’s Auditors and to authorize the Directors to
determine their remuneration.

9. To ratify the donations made during the year ended 31.12.2022 and to authorize the Directors to determine donations up to the date of
the next Annual General Meeting.

By Order of the Board

KAHAWATTE PLANTATIONS PLC

Jayanga Wegodapola
Company Secretary

31st May 2023

Colombo

Notes:
1. A shareholder is entitled to appoint a Proxy to attend and vote at the meeting on his/her behalf.
2. A Proxy need not be a shareholder of the Company.
3. A Form of Proxy accompanies this Notice.
4. The completed Proxy should be delivered to the Registered Office of the company, Kahawatte Plantations PLC, No. 111, Negombo Road,
Peliyagoda or duly signed, scanned and emailed to kaha.pwcs@gmail.com by or before 03.00 p.m. on 20th June 2023.
 Kahawatte Plantations PLC | Annual Report 2022 71

Form of Proxy
I/We* ............................................................................................................................................................. NIC No........................................................................................ of

.........................................................................................................................................................................................................................................................................................

being a shareholder /shareholders of KAHAWATTE PLANTATIONS PLC hereby appoint................................................................................................................

........................................................................................................................................................................... NIC No........................................................................................ of

............................................................................................................................................................................................................................................................ or failing him*

Mr. Merrill Joseph Fernando or failing him*

Mr. Malik Joseph Fernando or failing him*
Ms. Minette Delicia Anne Perera or failing her*
Mr. Daya Prabath Wickramatunga or failing him*
Mr. Dilhan Chrishantha Fernando or failing him*
Mr. Himendra Somasiri Ranaweera or failing him*
Mr. Nimal Maxwell Amerasekera

as my/our* proxy to represent me/us*, to speak and to vote as indicated hereunder for me/us* and on my/our* behalf at the Thirtieth Annual
General Meeting of the Company to be held on 22nd June 2023 at 3.00 pm and at every poll which may be taken in consequence of the
aforesaid Meeting and at any adjournment thereof.

For Against

1. To pass the ordinary resolution set out under item 3 of the Notice of Meeting for the re-appointment
of Mr. Merrill Joseph Fernando, as a Director.

2. To pass the ordinary resolution set out under item 4 of the Notice of Meeting for the re-appointment
of Mr. Daya Prabath Wickramatunga, as a Director.

3. To pass the ordinary resolution set out under item 5 of the Notice of Meeting for the re-appointment
of Mr. Nimal Maxwell Amerasekera, as a Director.

4. To pass the ordinary resolution set out under item 6 of the Notice of Meeting for the re-appointment
of Mr. Himendra Somasiri Ranaweera as a Director.

5. To re-elect Ms. Minette D A Perera as a Director in terms of Articles 25(1) of the Articles of Association
of the Company.

6. To re-appoint the retiring Auditors Messrs KPMG, Chartered Accountants as the Company’s Auditors
and authorize the Directors to determine their remuneration.

7. To ratify the donations made during the year ended 31.12.2022 and authorize the Directors to
determine donations up to the date of the next Annual General Meeting.

Signed on this ...................................................... day of ..................................................... Two Thousand and Twenty-Three.

..............................................................
Signature of Shareholder/s

*Please delete what is inapplicable.

Note:

1. Instructions as to completion appear on the reverse

2. A Proxy need not be a shareholder of the Company
 72 Kahawatte Plantations PLC | Annual Report 2022

Instructions for completion

Kahawatte Plantations PLC - Annual Report 2022

1. The full name, National Identity Card number and the registered address of the shareholder appointing the Proxy and the relevant details
of the Proxy should be legibly entered in the Form of Proxy which should be duly signed and dated.

2. The completed Proxy should be delivered to the Registered Office of the Company, Kahawatte Plantations PLC, No. 111, Negombo Road,
Peliyagoda or duly signed, scanned and emailed to kaha.pwcs@gmail.com by or before 03.00 p.m. on 20th June 2023.

3. The Proxy shall -

(a) In the case of an individual be signed by the shareholder or by his attorney, and if signed by an attorney, a notarially certified copy
of the Power of Attorney should be attached to the completed Proxy if it has not already been registered with the Company.

(b) In the case of a Company or corporate / statutory body either be under its Common Seal or signed by its Attorney or by an Officer
on behalf of the Company or corporate / statutory body in accordance with its Articles of Association or the Constitution or the
Statute. (as applicable)

4. Please indicate with a ‘cross’ how the Proxy should vote on each resolution. If no indication is given, the Proxy in his discretion will vote as
he thinks fit.
Our Policies
Quality Policy Human Resource Policy

We, at Kahawatte Plantations are totally dedicated and
committed to produce agribusiness products, that will surpass
customer expectations.
We believe that our people, empowered in a learning
organization, are our most valuable asset in the value creation
process, who should be respected and appropriately rewarded
for achieving excellence in everything they do to enhance
quality.
We hold ourselves to the highest standards of honesty and
integrity and require our suppliers to conform to enable us
ensure the quality of our products. We enjoy leading the way
in creating best practices with “Passion for Excellence”
We believe that our people are the most valuable asset
in driving the Company towards creating the best value
agribusiness enterprise and that our people should be given
opportunities to thrive in a Learning Organization.
We hold ourselves to the highest standards of honesty and
integrity and expect our leaders to be living examples.
We will be leading the way in setting Global best practices
in Human Resource Management and Development
for continuous improvement. We shall demonstrate our
passion for excellence in empowering people in a Learning
Organization in order to be “An Employer of Choice”

Health, Safety & Environment Policy

We, at Kahawatte Plantations firmly believe that respecting

our people and planet Earth is a core value in achieving our
vision and pledge ourselves to continuously improve our
health and safety of our people while setting standards and
guidelines to protect and preserve the environment.

We believe that to achieve excellence in everything we do; the

health and safety of our people is of paramount importance
and it will enhance the productivity, personal
growth and our socio economic standing.

We believe that all development should be sustainable

while preventing planet Earth, which belongs to our future
generations.

We commit ourselves to be proactive in ensuring a healthy

and safe workplace by establishing necessary systems and
processes to eliminate preventable accidents and set up an
environment friendly business practices. We enjoy leading the
way in “Respecting Our People and Planet Earth”